Is the money market account better than the savings account?

Both money market and savings accounts are financial tools offered by the different banks and financial institutes to customers to provide them with suitable means of saving money. There are some basic differences between the two which can be summarized as follows-

Security 

Both the savings as well as money market account remains regulated and governed by the FDIC norms and regulations. This makes the accounts secure to invest. The only difference in terms of security between the two accounts is that while the investments in a savings account remain well secured and are not linked to the markets, the money market accounts are not and hence they are riskier. This is the reason the investor who saves money in savings accounts might not have earned high interests but will surely get back the amount that he has managed to save. On the other hand, the funds in Market money might give higher returns but the investor has to face market risks as their performance remains linked to the markets. If the markets perform very poorly, then the investor stands the chance to lose the money invested.

Interest rates 

The interest rates in savings account remain fixed, depending on the money deposited. Greater the amount saved, higher will be the interest earned. In money markets the interest rates depend on the performance of the shares in the market index and hence keep fluctuating.

Yields

The amount of money that an investor can expect from a savings account will not be very high. The yields in money market investments are much higher than that of savings account. The main reason behind this is that the money invested in money markets are invested in shares and a good rise in the share price will also increase the rate of return.

Fees

In savings account, the two fees that are mandatory are the minimum balance that needs to be maintained and the transaction fees. In money market funds, there are a number of fees that are levied on the investor, the biggest of them being the expense ratio. This is a kind of processing fees for managing the investor’s money.

Accessibility 

Both savings and money market funds are easily accessible. The difference between them is that while the funds in money market needs to remain blocked for a very short period of time, the money invested in savings accounts can be made accessible any time as per the need of the investor.

Financial growth

The money kept in the savings account functions more like a secured locker where one can deposit and withdraw money with ease. There is no major growth in the principal amount that a person keeps. Money market funds on the other hand offer greater opportunities to investors to increase their money by investing in shares.