What's the difference between Savings and Money Market accounts?

[safari]

Does anybody know the difference between a Savings and a Money Market account? This question has been bugging me for a while. Both types of accounts have a limit on the number of withdrawals per month. Some accounts offer checkwriting and a debit card, but there is no consistency, so that couldn't be it. As far as I am concerned there is no difference between the two types of accounts; it's just a different name that banks use.

[Broken Arrow]

I think this has been asked before....

Besides paying different rates, there really isn't a difference for us end-users. There may be on the insitutional side, but if so, I would not know what that is. In fact, a MMA IS a Savings account. Some banks, however, prefer to call it something different, such as a high-yield savings account or eSavings (to denote the supposed low overhead of having it available online).

However, there is a difference between a Money Market Fund (MMF) and a Money Market Savings account (MMA). Therefore, I'm almost inclined to say that the term MMA has have been derived as a competitive product to MMF?

But yes, most MMAs are indeed a Savings account.

[sweeps]

Yes, there is no consistency. You can't really infer anything by the name. In fact some places use terms like "money market savings account."

[meaghanchan]

I always thought the difference was that the Money Market Account was not FDIC insured. I could be wrong, however.

[sweeps]

A money market "fund" is usually not FDIC insured. A money market "account" is usually FDIC insured. But again, check the details of the account because the names are sometimes misused.

[Broken Arrow]

I think a better question is why would anyone want to use a Money Market Fund? MMAs are just as good in almost every way and, as a savings account, they are also FDIC insured. Are there any advantages to MMFs, besides helping to avoid brokerage fees somehow?

[poundwise]

The inconsistency in terminology is tripping us up.

Fact is, some accounts (not the online MMA savings offerings that we largely discuss here) can earn interest at varying rates and can also lose money. This is what is being referred to as a money market fund, but is also sometimes called a money market account.

The reason the online banks call their offerings for savings high-yield savings and money market savings is, no doubt, to distinguish them in that they have fixed (although ever-changing it seems) interest rates offered.

Notice these definitions for "money market account":

Accounts that work like money market funds and allow individual investors to participate in certain managed investments and withdraw funds under most conditions.

A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

The distinction then is between whether or not you are investor in a collective fund subject to the success of the fund or if you are given a specific rate of return.

So, in a nutshell, a money market savings account is, to the consumer, a higher-rate savings account. The bank then takes the collective funds of its customers and invests it. The good news is, the end consumer is given a specific rate of interest that they will earn on their 'investment' rather than putting any earnings at risk. Of course, the flip-side is that you will not earn more than the stated interest either, no matter what the bank makes with the short-term investments.

I, for one, think that this is one of the best things that the proliferation of the Internet has given us. My local bank offers less than half-a-percent rate interest on savings yet there are about a dozen of 'online, high-yield, money market accout, savings' that will give 5% or more (APY).

[Broken Arrow]

In the previous thread that begs this similar question, I had proposed that the terms MMS (Money Market Savings) and MMF (Money Market Fund) be used instead of MMA, because both can be considered as an account of sorts. Alas, it hasn't caught on yet.

[disneysteve]

Originally Posted by Broken Arrow

Are there any advantages to MMFs, besides helping to avoid brokerage fees somehow?

There are tax-free money market funds. I don't think banks offer tax free money market accounts (but I'm not positive of that). So if you are in a high tax bracket, you may do better in a tax-free MMF.

[Broken Arrow]

Oh yeah, that's a good point Steve. I recall seeing some fairly tax-efficient (if not exempt) MMFs in the past but I don't make enough to worry about that sort of stuff yet.

[disneysteve]

never mind.