Difference between Money Market Account and Savings Account
Key Difference: Money Market account is a higher yielding savings account that provides a better return on the cash in the account. In a savings account, the bank can only use the money to provide loans to other people. In a money market account, the money is used for money market instruments such as treasury notes, certificates of deposit, municipal bonds, etc. In return, they provide the customer with a higher rate of interest.
Money saved always end up in some kind of account with a bank. Accounts make it easier for the person to write out checks, send automatic payments. Also, it is much safer than keep the money at home in a sock drawer or the refrigerator. There are various different accounts that are available at the local bank that allows users to save their money. These accounts determine what the bank can do with the money in the account and the benefits that customer’s receive. These bank accounts include Savings Account, Salary Account, Checking Account, Money Market Account, etc. Money Market account and Savings account are two different types of account where people can deposit money. These accounts provide different benefits to a customer.
The term Money Market can refer to an account or an actual Money Market, where people conduct short-term borrowing and lending. Money market is a component of financial market where short-term borrowing can be issued. This market includes assets that deal with short-term borrowing, lending, buying and selling. The short-term ensures that the borrowing and lending period has a lease of less than one year. The lease can also be as short as a one hour, depending on the borrower and the lender. According to The Global Money Markets, Trading is usually done over the counter using instruments such as Treasury bills, commercial paper, bankers' acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage-, and asset-backed securities. The money market was created as some businesses have a surplus of cash, while the other businesses were looking for loans.
Money Market account is a higher yielding savings account that provides a better return on the cash in the account. In many ways, it works the same as a savings account, where the money placed into the account is loaned to others on an interest base. How it works is like this. When a person places the money into their savings bank account, the bank can use that money by giving it as a loan to other people that seek loans at a bank. The bank then charges an interest rate from them, which is somewhere 5-6% or can even be higher. The bank pays you a small part of that interest on the money, if it is using your deposit. The bank usually gives around 0.7-1.2% depending on the bank.
In a savings account, the bank can only use the money to provide loans to other people. In a money market account, the money is used for money market instruments such as treasury notes, certificates of deposit, municipal bonds, etc. In return, they provide the customer with a higher rate of interest. These are considered as safe investments that are backed by the Federal Deposit Insurance Corporation (FDIC) in the US and similar insurance institutions in other countries.
The major difference between the two accounts lies in where the investments are being made. However, it is believed that a person should deposit in a money market account if they have enough money at their disposal. While, savings accounts are best for those that live check to check. Both are similar as many banks offer the advantages of a savings account to a money market account, such as six withdrawals in a month, free check writing, automated electronic exchange services, etc. A person who has money lying around can also park it in money market mutual funds, as it would provide much better returns and is considered as a safe investment. However, it is not backed by FDIC or any such insurance firms. Another difference between the two is that in savings account, the person is required to maintain a small minimum balance such as US$ 20-50, depending on the bank, while in a money market account the person would have to maintain a higher minimum balance. Depending on the circumstances and the person, a person can opt for either account.
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