Money Market Accounts vs. Savings Accounts
Savings accounts and money market accounts are types of accounts offered by financial institutions to their customers. Money market accounts come in two varieties: money market deposit accounts and money market mutual fund accounts. Money market mutual funds are actually invested in short-term investments such as government bonds. Money market deposit accounts are very similar to savings accounts except for their minimum deposit requirements.
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Risk
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With a savings account, the major risk that you take is that the inflation rate will be greater than the rate of interest that you receive on the savings account. Both savings accounts and money market deposit accounts are FDIC-insured, along with your other accounts, as long as they all total no more than $250,000, which means that if the bank fails, you will be reimbursed for your losses. While a money market mutual fund account losing money is rare, it has happened, and these accounts are not FDIC-insured.
Costs
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Savings accounts usually do not have any monthly or annual account fees associated with them. In addition, savings accounts generally have very low minimum balance requirements, some as low as $50, which must be met in order to avoid a fee. Money market deposit accounts are similar to savings accounts except that they have a higher minimum balance requirement. Money market mutual funds will charge an expense fee, usually about 0.5 percent, for the service of investing your money.
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Returns
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Money market deposit accounts and money market mutual funds will usually have higher returns than savings accounts. Money market deposit accounts' higher minimum balance requirements let them invest in slightly more aggressive investments.
Accessibility
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Savings accounts and money market accounts are very similar in the access they offer account holders to their money. The money is not locked into the account for any specified length of time so you can empty the account should an emergency arise. However, if you intend to keep the account open, you need to maintain the minimum required balance or you will be hit with fees. Because savings accounts usually have lower minimum balance requirements, you have slightly more flexibility to withdraw money. Both types of accounts allow you to have six transfers per month, with up to three of them being checks.
Taxes
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For tax purposes, savings accounts and money market deposit accounts are treated the same way: You must pay taxes on the interest you earn. However, money market mutual fund accounts may avoid taxes depending on what types of investments they make. For example, some money market funds only invest in tax-free investments, which means you will not have to pay taxes.
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