In the world of safe, boring investments, money market accounts and savings accounts vie for first place. Both types of accounts sport Federal Deposit Insurance Corp. (FDIC) insurance, meaning that your principal and interest are guaranteed as long as you follow the regulations associated with the account. However, some small differences between these two types of accounts may make one a better option for helping you meet your financial goals.
Money market accounts, also called money market deposit accounts, sometimes offer a higher interest rate than traditional savings accounts. However, some banks, especially online banks, and some credit unions promote high-yield savings accounts that may require a minimum balance and can have interest rates competitive with money market accounts. Both accounts typically feature daily compounded interest and allow you to maintain the account for the term of your choosing.
In most savings accounts, you can deposit money and make cash withdrawals freely, either by visiting a teller, using an automated teller card or transferring money via online banking or telephone. Money market deposit accounts add to your flexibility by permitting check-writing. According to the Motley Fool website article "Where to Park Your Cash," you cannot use a money market account like a checking account, because you usually can write only three checks per month, plus make three other types of transactions, such as transfer, before incurring a financial penalty.
Money Market Funds
When considering money market accounts, it's important to distinguish them from money market funds. These funds operate as more speculative investment vehicles. However, according to the U.S. Securities and Exchange Commission website, money market funds traditionally have low risk as their value centers around cash-like investments such as government securities and certificates of deposit. Unlike money market accounts, money market funds do not have FDIC insurance.
Traditional money market and savings accounts often have different requirements regarding maintaining a minimum balance. Most money market accounts require a higher minimum opening deposit and balance to justify the higher interest rate. For this reason, many people use money market accounts for longer-term investments that they still want to stay more readily available than a certificate of deposit.
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