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What's the difference between money market and savings accounts?
A lot of people are confused as to what the difference between a money market and a savings account are. Some people think they are completely different things while others think they are basically the same. The reality is somewhere in between. The two accounts have similar goals but they get there in different ways. Which is better for your needs is going to depend on your particular financial situation. Therefore it is important to understand the difference so that you can choose the right one for you.
The main difference between a money market account and a savings account is in the ease with which you can access your money. However it is not always clear which account is easier to access. A savings account
will allow you to withdraw money any time that you want an unlimited number of times each month. However a savings account does not allow you to draw checks on your account. With a money market account you can
write checks but you are limited to six transactions each month, at least in theory. Strictly speaking you can make as many transactions each month as you want but beyond six the fees will be extremely high.
The reason for this is that the government wants banks to discourage people from using money market accounts as their everyday bank account.
The other big difference between a money market account and a savings account is that the money market almost always offers better interest rates. That being said this is not always the case, especially with the rise in online banks offering very high savings account rates. You are going to want to shop around for competitive money market rates so that you can be sure that you are getting the best return possible on your investment.
The reason that you will normally get a higher interest rate on a money market account is that there is slightly higher risk involved. A money market account is one in which your bank will loan the money that you deposit to other banks to lend to their customers. Since there is a slightly higher risk involved in this than there is for a savings account where the bank is making loans to their own customers they offer a better rate of interest to their customers.
This raises the question then of whether you should have a savings account or a money market account. In general there is little reason to have both. A money market account will normally require a fairly large investment to get the best interest rate and the lowest fees, if you are planning to deposit more than this amount you are better off with a money market account. If you are only planning to deposit a smaller amount it is better to go with a savings account since there is normally no minimum required to get the best rates.