Money Market Accounts vs Savings Accounts

Money market accounts and traditional savings accounts differ in slight but potentially important ways. Here is a discussion of what's peculiar to each account, and what that means to retirement savers.

Money Market Account or Traditional Savings Account: Which One, Why, and When?

Money market accounts and traditional savings accounts are not as different as apples and oranges, but neither are they the same. It's worth knowing which is which, especially if you're using the funds to save for retirement.

Retirement saving, after all, is all about employing various investment products to reach one goal. Seeing subtle but important distinctions can help you do that dance.

Money Market Accounts: Special Characteristics
The money market account is usually thought of as a longer-term, less liquid investment. Put a good-sized chunk of money in (many accounts have minimum balance requirements) and leave it alone for numerous years.

In return, banks give higher than average interest rates. Money market rate comparisons, found online, can help you get the best deal and provide more details on specific offers.

However, this does not mean that once you open a money market account your money is locked up for the duration. On the contrary, many MMAs allow you to make withdrawals or even write checks from the account, though most limit how many transactions you can perform each month.

Traditional Savings Accounts: Special Characteristics
A traditional savings account, meanwhile, is often a sort of intermediate product between a money market account and a checking account. You may need to access the money fairly frequently, but ideally you'd like to save it.

Traditional savings accounts, because they offer easier and more constant liquidity, traditionally pay lower interest rates. Savings account rates fluctuate and can vary greatly depending on the bank.

Of late, traditional savings accounts have become somewhat less tradition-bound. Innovation has entered the arena. High-yield savings accounts, which pay higher interest rates, are one example. Online savings accounts and savings accounts with debit cards attached are two more.

By reducing the service costs associated with traditional savings accounts--your ability to go talk to a teller in person, for instance--banks can pay higher interest rates and more convenience while still making a profit on their end.

Thankfully, these new products have not changed the fundamental appeal of the traditional savings account: better interest rates than a checking account, but easier access to your money than a money market account.

Common Ground for a Common Goal
When you get right down to it, money market accounts and traditional savings accounts, despite their differences, are closely related. They are both great ways to save and grow your money without the risk of losing it.

Both are backed by the FDIC, up to a limit of $250,000 per depositor, per institution. Both fit nicely into smart retirement saving strategies.

And both are perennial favorites of conservative rich people everywhere.

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