General Question

ava's avatar

What is the difference between a savings and a money market account?

Asked by ava (982points) May 28th, 2007
I would like to start saving some money, and it would be nice if that money made some interest as well. I'm just not sure which is better...a savings account or a money market account.
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8 Answers

gailcalled's avatar
Vanguard Money Market Funds pay better interest than most savings accounts; plus they offer the convenience of check-writing privileges. Check out for your state; If you are interested in long-term savings, where you don't need the money for taxes, mortgage, car, etc, other conservative funds pay more. Vanguard will let you talk to a human being for advice, also. Your bank usually will have pathetic rates for savings and CDs. Capitalone has a good MM rate if you use their Master Card.
ben's avatar
For your purposes, they're basically equivalent, though some Money Market accounts will have minimums. In general, you should just aim for the highest interest... you should now be able to find > 5%. Technically, a money market account is invested in ultra-low risk stuff like treasury bills, while a savings account is handled directly by the bank. (They both should be FDIC insured to $100,000)
ben's avatar
If your saving money for the long term, you should definitely consider putting some in the stock market, probably in an Index fund... over time that will very likely do better than a savings account.
ben's avatar
But if you really don't want risk, I would take a look at tax-free municipal funds... depending on your tax-bracket, these are better than savings accounts for just putting your money in and leaving it... they might only get 3.5ish percent, but since do don't pay taxes that can be equivalent to almost 6 percent, depending on what you find (but they have more variable risk, depending on which you go with).
ben's avatar
If you're just getting started and don't want to be overwhelmed, don't worry about the fancy stuff... just find a good account and start saving :)
Mike's avatar

A money market account is likely to offer a slightly higher interest rate than a bank savings account. If those are your choices, money market is the way to go. The earlier poster, gailcalled, is correct that Vanguard's low expense ratios make Vanguard money market accounts an excellent option. However, neither savings accounts nor money market accounts are appropriate long-term investments. These are no-risk places to park cash that you might need in an emergency, nothing more. If you want an investment, these will not come close to matching the returns of stocks.

One note: The odd-looking poster named "Ben" is only half right when he says money market accounts are FDIC insured. The money market deposit accounts offered by banks usually are FDIC insured, but money market mutual funds are not. Even without FDIC insurance, they are essentially risk free, however, since they typically invest in short-term debt issued by the U.S. government or U.S. government agencies. As long as our government survives, your money should be secure.

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