Ronald E B answered most of the question, but I will supplement:
Savings accounts are insured by the government, in the event that the financial institution in which they’re held becomes insolvent. So that’s really solid.
Money market investments do not have that kind of insurance in Canada (not sure where you are).
Insured or not, they are low risk investments, but NOT no-risk. Because they hold investments (low-risk ones), there is a risk that they can become worth less than their “book” value (what you purchased them at, or deposited into them), in addition to the risk of insolvency, of whatever institution holds that investment for you.
The benefit to a money market investment (it needs a benefit to offset the down-side), is that it CAN pay higher interest than a savings account. You’ll need to check on its track record over different periods of time though to see if that’s true now.
I used to have a money market account, but interest rates became so low in general, that the fact that there were even tiny fees being deducted from the money market investment meant I was earning next to nothing. So I switched to a high-interest, insured savings account at a bank that will remain nameless, but uses a lot of orange! No fees, no minimums and high interest plus insurance, so no downside. There are now other banks offering this kind of account, so take a look around.
Categories
4 Comments
A savings account is a deposit at a bank. The funds are insured up to $100,000 by the FDIC. A money market account is an investment in an account that generally holds short term government securities. While the money market account is not insured, it is very rare that a money market account will “break the buck” (i.e., fall below $1.00 per share).
A money market account can somtimes usually require a much higher amount of money to start out with than a savings account. Usually the money market account can give a higher return than a savings. With a savings account You don’t need
a lot of capital to get started in a savings account.
One has a higher interest rate then the other and may require a certain amount to keep that rate. Money markets are FDIC insured.
Usually a money market pays quite a bit more interest than a standard savings account. Also usually with a money market you can write checks (usually only 3/month, but it really varries from bank to bank). Money markets also usually have a high minimum balance to avoid fees.