This may sound like a question that should have a simple answer, but the reality is that the distinction between these three types of accounts can be difficult to discern. In fact, there’s no clear-cut answer as to what distinguishes one from another. Despite the ambiguity surrounding these terms, it’s important for consumers understand how each account works so they can make informed decisions about their money.
Here are some key differences between savings, checking and money market accounts:
1) Savings Accounts
According to Aron Govil savings accounts are deposit products that typically offer a higher interest rate than checking or money market accounts because they present little risk of loss to the depository institution. That being said, many institutions have stopped offering interest on traditional savings accounts in an effort to compete with money market accounts, which typically offer even higher interest rates. In general, savings accounts require a minimum deposit to open and do not usually allow for additional deposits or withdrawals after the account has been opened except under certain conditions, such as federal holidays. Savings accounts are generally FDIC-insured.
2) Checking Accounts
A checking account is essentially a deposit product that allows users to withdraw funds by writing a check or withdrawing cash from an ATM or branch location. Consumers generally keep a checking account for the convenience of having access to their money so they don’t have to wait until their paycheck comes in to pay bills and other expenses. Consumers can also take advantage of the overdraft protection service offered by many banks into which consumers can link their debit cards, which enables them to make purchases or withdrawals even when there are insufficient funds in their accounts. Checking accounts are typically not insured by the FDIC because most institutions require consumers to agree that they will not keep more money on deposit than is permitted under Federal Reserve Board rules.
3) Money Market Accounts
Money market accounts are essentially a hybrid of checking and savings accounts with higher interest rates than checking, but with fewer withdrawal restrictions. They often pay higher dividends than either traditional savings or checking account because money market deposit accounts usually possess less risk for the depository institution holding the account. For this reason, some institutions require an initial minimum opening deposit of $5000 or more for a money market account. Consumers may also have to maintain monthly direct deposits into these accounts. Like savings accounts, money market accouns may not allow for additional deposits or withdrawals after the account has been opened except under certain conditions. While checking and money market accounts can be FDIC-insured, savings account are generally insured by either the FDIC (for banks) or the NCUA (for credit unions).
If you’re looking to earn a little interest on your savings while having easy access to your funds, then a checking account is probably what you want. However, if you’re looking for more interest on your deposit and want to make sure that it’s safe from loss by the financial institution holding it, and then goes with a savings account. If you need flexibility in order to pay bills and withdraw cash when necessary but still want higher rates of interest than a checking account, then you should consider an MMA.
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FAQs:
What is a checking account?
A checking account is essentially a deposit product that allows users to withdraw funds by writing a check or withdrawing cash from an ATM or branch location. Consumers generally keep a checking account for the convenience of having access to their money so they don’t have to wait until their paycheck comes in to pay bills and other expenses. Consumers can also take advantage of the overdraft protection service offered by many banks into which consumers can link their debit cards, which enables them to make purchases or withdrawals even when there are insufficient funds in their accounts. Checking accounts are typically not insured by the FDIC because most institutions require consumers to agree that they will not keep more money on deposit than is permitted under Federal Reserve Board rules.
What is a money market account?
A money market account is essentially a hybrid of checking and savings accounts with higher interest rates than checking, but with fewer withdrawal restrictions. They often pay higher dividends than either traditional savings or checking accounts because money market deposit account usually possess less risk for the depository institution holding the account. For this reason, some institutions require an initial minimum opening deposit of $5000 or more for a money market account. Consumers may also have to maintain monthly direct deposits into these accounts.
Conclusion:
All three accounts are checking account types. If you’re looking to earn a little interest on your savings while having easy access to your funds, then a checking account is probably what you want says Aron Govil. However, if you’re looking for more interest on your deposit and want to make sure that it’s safe from loss by the financial institution holding it, and then goes with a savings account. If you need flexibility in order to pay bills and withdraw cash when necessary but still want higher rates of interest than a checking account, then you should consider an MMA.
