Which Account is Best for You? Money Market or Savings

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When it comes to banking, you have a number of options. There are different types of accounts; each type of account comes with different benefits and features. Two accounts that are somewhat similar are money market accounts and savings accounts. Both are considered savings deposit accounts, but there are some differences between the ways the two operate.

A money market account is, like a savings account, considered a non-transactional deposit account. You put money in the bank, and the bank pays you interest. You are paid interest on your deposit because the bank can use your money to make loans to other people and earn a higher rate of interest. The main difference with the money market account is that you are often issued checks. You can write checks from a money market account, or use a debit card – much as you would from a regular checking account.

How a MMA Differs from Checking

The difference in how the Federal Reserve classifies accounts is the primary way money market accounts differ from checking accounts. A checking account is considered a transactional account in that money is stored in it for short periods of time before being spent. A money market account on the other hand is considered non-transactional like a savings account and is subject to a different set of regulations.

Transactional accounts are subject to Regulation Q which among other things prevents banks from paying interest on the accounts. Banks have found ways around this by offering Negotiable Order of Withdrawal (NOW) accounts that they market as checking accounts and are nearly identical, but for the most part, banks do not pay interest on checking accounts.

Money Market Accounts are subject to Regulation D instead and almost always pay interest. The trade-off is there are hard limits on the number of third party transactions (checks, debit card use, ACH transfers) you may have on these accounts each month. You are limited to 6 transactions per month by law and sometimes less depending on the bank.

Which Should You Choose?

In the end, money market accounts and savings accounts are nearly identical and offer similar interest rates. Money market accounts provide more convenient access to your money, which may be important for some. In most cases however, how the bank classifies the account should not be deciding factor and you should make your decision based on current rates and the bank or credit union you would like to work with.

Both money market accounts and savings accounts are considered non-transactional accounts and are subject to Regulation D which, among other things, limits the number of monthly withdrawals from the account to 6.  The main difference with the money market account is that you are often issued checks. You can write checks from a money market account, or use a debit card – much as you would from a regular checking account.

This post has been provided by DepositAccounts.com, a site that tracks current rates for thousands of banks and reports on current banking deals.

Published or Updated: March 30, 2011

Comments

  1. Ravi Gupta says:

    Great article! I was recently fined for violating regulation D because I made too many transfers out of my savings account. I wish that banks would disclose some of these regulations and what counts as a third party transfer.

    -Ravi Gupta

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