Ask the expert: savings accounts or money market accounts?
January 27, 2011
Q: I have a CD maturing, but I don't want to roll over into another CD right now with interest rates so low. I'd rather park the money in a savings or money market account, but that raises a question: what's the difference between savings accounts and money market accounts? Specifically, which would be a better place to hold my money while I'm waiting for interest rates to rise?
A: The prospect of rolling over a CD at today's low rates is pretty unappealing, so it is natural for depositors to look at savings accounts and money market accounts as a temporary alternative, until interest rates rise. So which is the better solution: savings accounts or money market accounts?
The truth is that in this context, the two are virtually interchangeable, and it is worth looking at and comparing both kinds of rates. Terms and conditions about how often you can access different types of accounts may vary, but in the case where you are trying to park one lump sum of money until you find a better home for it, that shouldn't matter much. So, the decision really comes down to interest rates.
In general, money market rates are higher than savings account rates. According to FDIC figures, as of late January, 2011 the average money market account rate was 0.07 percent higher than the average savings account rate. However, this margin is small enough that it is worth looking at both types of accounts, because individual savings account rates might be higher than their money market counterparts.
So, include both savings accounts and money market accounts in your search, and focus on the best rates for the size of the deposit you are making.
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