For many it is common to confuse certain financial terms because they are not used to handling every little detail of their money. This confusion can arise between savings accounts (savings accounts) and the money market accounts (money market accounts – MMA), whose characteristics tend to be very similar.
Article content
- What are savings accounts?
- What are money market accounts?
- What interest rates does each type of account apply?
- What conditions apply to savings and money market accounts?
- What are the withdrawal limits for each one?
- Are they FDIC insured?
- Do you allow to write checks?
In this article we will see what the differences are between them and in which cases one modality is more interesting than another.
What are savings accounts?
The savings accounts They are basically demand deposits that allow you to withdraw and deposit money without expiration dates or penalties. This money is normally used by the bank to grant loans to other clients and, in return, it offers you a return in the form of interest.
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What are money market accounts?
The money market accounts They are very similar to savings accounts, however the bank usually uses the money deposited in them to invest in stock markets.
These accounts usually offer higher returns and the ability to write checks and withdraw cash at ATMs using a debit card.
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What interest rates does each type of account apply?
Money market accounts offer, by their nature or promotion, higher interest than savings accounts. They are usually described, in fact, as high-yield accounts or high profitability accounts.
It is currently possible to find money market accounts that exceed 2% APY profitability.
What conditions apply to savings and money market accounts?
Because of its promotion, people think that MMAs are more sophisticated products than ordinary savings accounts. This perception prompts banks to impose an amount of highest initial deposit, restricting the public that can access them.
This often happens when the account has a higher interest rate than usual. The institution could even apply a monthly or annual commission so that you have the opportunity to sign up for a money market account.
We see this condition in a large number of banks, but it does not mean that there are others that offer them without such limits or charges. That’s why it’s important compare and know the fine print before hiring any product.
Savings accounts, on the other hand, do not usually apply commissions or annual fees, although there are exceptions. They can also apply a minimum deposit to hire them, but it is not usually high.
What are the withdrawal limits for each one?
Based on the law, the United States government considers that both savings like the money market they are deposit accounts. Since banks treat them in the same way, they are not designed for frequent withdrawals or operations.
According to Regulation D, You only have the right to make 6 withdrawals preauthorized every month. This applies to transactions with checks, online transfers and debit card, but not for operations at the counter or ATM.
Are they FDIC insured?
Both savings accounts and money market are classified as deposit accounts, which implies that they must be automatically insured by the FDIC. This is also true for certificates of deposit, bonds, and checking accounts.
That is why it is important to check that the bank you are going to choose is affiliated with this institution, which covers your losses. up to $ 250,000 USD.
In this sense, these instruments should not be confused with the so-called money market mutual funds or money market funds, which are not insured by the national government.
These funds are higher risk investments whose dividends are subject to economic indicators. These are more common in investment firms and allow you to buy / sell stocks to invest in highly liquid assets.
Do you allow to write checks?
There are banking institutions that give you the ability to write checks with money market accounts, if you think you need this instrument for your personal or business finances. Although this may be true for some banks and not for others, the limit of 6 operations per month it does not change for having this privilege.
The basic difference is related to the penalty, which is a commission when you exceed said transaction limit. There are some entities that could close your savings or money market account if you default 3 times in the last 12 months or they could threaten to eliminate it if you go over the limit only once.
In the background, savings and money market accounts are very similar. Perhaps its most notable differences are a relatively higher interest rate and the ability to get a checkbook. Otherwise, they can be considered as identical in their operation.
