What’s the difference between a bank account called a “savings” account and one called a “money market” account? Technically, very little.
Usually money market accounts will allow consumers to have some sort of limited check writing and debit card capabilities, whereas savings accounts do not. However, the reverse can also be true. But other than this one general trend, there’s no actual difference between these accounts other than their names.
Nevertheless, many consumers have incorrect notions about money market accounts - here are some of the assumptions that people have that are incorrect.
False Assumption 1: Money market accounts earn higher interest than savings accounts. Although it may be the case at some banks, in general money market accounts don’t earn higher rates than savings accounts. For instance, Discover Bank, Ally Bank, and Century Bank Direct all have higher rates right now for their savings accounts than their money markets, and 9 of the top 10 highest-yielding bank accounts on BankFox are currently called “savings” accounts.
False Assumption 2: Banks treat cash from money market accounts and savings accounts differently. Banks do not segregate the cash that is deposited with them and invest it differently. All of it is aggregated into one big pool of money, and it is loaned out to borrowers in the same way.
False Assumption 3: Money market accounts are not FDIC insured like savings accounts. As long as you have less than the insurance maximums deposited at your bank (currently $250,000 per individual), it should all be FDIC insured whether it’s in a savings account, money market account, checking account, or certificate of deposit.
False Assumption 4: Money market accounts, unlike savings accounts, can lose value. Both money market accounts and savings accounts can only go down for one reason – if your bank deducts fees! Other than that, neither a savings account nor a money market account should ever go down in value until you make a withdrawal.
Many of these false assumptions about money market accounts come from people confusing them with “money market funds” which are offered by financial institutions like brokerage firms. Money market funds are designed to be a place where people could invest cash and get slightly better returns than at a bank in exchange for somewhat higher risk. (Specifically, no FDIC insurance and the possibility of theoretically “breaking the buck” and losing money.) The financial crisis drew attention to such funds because it caused many who had money in these funds to worry about the security of their cash.
But losing money at an FDIC Insured Bank should not be a worry for consumers, and they should not make decisions about which type of accounts to have simply based on whether they are called money markets or savings accounts.
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