Most banks offer both money market accounts and savings accounts, money market accounts, although less frequently. At first glance, these two accounts are remarkably similar – both interest payments, as there are some limitations of liquidity and are both protected by Federal Corporation on insurance of deposits (FDIC). However, most money market accounts usually pay slightly higher interest rate, which can make them more attractive for investors.
Financial institutions are limited in what they can do with the funds in your savings account, but have more flexibility when it comes to money market accounts. They are permitted to invest in certificates of Deposit (CDs), for example, or government bonds or other low risk investments. This allows the majority of the agencies offer higher interest rates on money market accounts, cash savings accounts. As of September 2018, money market accounts offer on average the annual percentage yield (APY) 0.08% and 0.11%; savings accounts average of 0.08% APY at best.
Other differences between a money market account and savings accounts are not material. Depositors who have a history of withdrawing funds from savings accounts on a regular basis may want to avoid money markets, which have restrictions on how often withdrawals can be made. Some even require a waiting period to receive the money.
In the end, investors tend to choose money market accounts because they offer higher interest rates than savings accounts. While the difference in the interest earned may be small, it may be enough to compensate for the lack of liquidity, if depositors are unlikely to need quick access to their money.
Finally, do not confuse money market Deposit accounts mutual funds money market. Mutual money market funds are not protected by FDIC and a few differences from the traditional contribution of “demand” (checking) and savings accounts.