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Money Market Accounts vs. Savings Accounts
A money market account is an interest-bearing account that pays a higher interest rate than a savings account, and gives the account holder limited check-writing ability. It combines the benefits of savings and checking accounts, but usually requires account holders to maintain a higher balance in exchange for the higher interest rate.
Summer has checking and savings accounts at her bank, but the checking account pays 0.5% interest and the savings account pays 1% interest. She doesn’t write many checks, her average daily balance is $5,000, and she wants to earn a higher interest rate without taking on more risk. She learns that her bank offers a money market account, which lets her write up to six checks per month and requires a minimum balance of $2,500. It’s FDIC-insured, like her checking and savings accounts, but pays 1.5% interest.
Summer decides to close her savings account and move most of her money into the money market account. She keeps some money in her checking account to pay her bills. The interest Summer earns on her money market account is taxable, but so was the interest she earned from her savings account. The bank invests her deposits in low-risk assets like certificates of deposit, U.S. Treasuries and commercial paper.
Money market accounts are widely available through banks and other financial institutions. When Summer makes her annual contribution to her Roth IRA, she learns her brokerage has a better money market account paying 1.9% interest, so Summer moves her money again. Her brokerage operates online and has lower overhead than her bank, so it can afford to pay account holders a better interest rate. Even though Summer’s new money market account is with a brokerage, it is
still FDIC-insured, and her money is still invested in low-risk assets.
Find out which type of bank account suits your specific needs.
A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
Money market savings accounts can offer higher interest rates than regular or even high-yield bank savings accounts – and perks like these.
Curious about the best saving accounts and which ones suit investors?
A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
Money market accounts can be helpful "parking spots" for investors. Here are five key things to keep in mind when opening an account.
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You know how to spot the highest interest rate, but how do you really get the best deal on savings accounts?
While the recommended savings rate has historically been 10%, indications are that today, most Americans are putting away less than 5%
Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
Category: Savings account