Which is better: savings or money market accounts?

This article would only interest you if you have a large amount of money waiting for you in your savings account. Otherwise, if you don’t have much money to invest in the first place, then stick to your savings account and try to earn a little bit more before you decide to up your game.

The money market is a market-sensitive bank account which will allow you to get greater returns compared with the more stable savings account. However, there are more restrictions along with new features. The decision on whether opening a savings account or a money market deposit account is basically dependent on you as the depositor.

The money market deposit account (MMDA) is a type of high-yielding savings account that was authorized during 1982 under the Garn-St. Germain Depository Institutions Act. This allowed for the creation of bank accounts which aims to be fully competitive against mutual market funds in attracting deposits.

This type of account operates under the market rate of interest. It has no regulatory limit but it requires a higher maintaining balance compared with savings accounts. The maintaining balance is set at least at US$500 but most require US$1,000. Should the balance reach below the required maintaining amount, the withdrawal rate of the MMDA is the same as a regular savings account.

Basically, the features of the MMDA can be summarized as a hybrid between a savings account, a checking account and a mutual fund portfolio. MMDA are generally considered liquid assets and there are basically no restrictions to the amount of transfers that can be made to the account.

It comes with a checking feature but most of them can only be accessed through the automated teller machines (ATMs). Unfortunately, unlike traditional savings accounts, you may not withdraw unlimitedly from your MMDA account. Some banks would prescribe a specific number of preauthorized withdrawals for your money market account.

Since the MMDA is also a bank account, it is also protected by the Federal Deposit Insurance Corporation (FDIC). Therefore, there is really no risk when you deposit your money into your MMDA and this is a good safety feature adopted from the traditional savings account.

Basically, the MMDA can act as your investments similar to what you would be doing in the stock exchange. Compared with the traditional savings account, you can get greater returns. This is the feature inherited from mutual funds investments.