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Money Market Accounts vs Traditional Savings Accounts – What’s the Difference?

Posted on | November 13, 2011 | No Comments

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You work hard for your money. It’s only understandable that you want to make your money work hard for you, too. When you’ve put the hard work into saving your money, then you owe it to yourself to take your savings to the next step by investigating savings options that offer a return for all your hard work. Two such savings methods that you can capitalize on are money market accounts and savings accounts. Here to help you size up the two is this comparison: money market accounts versus traditional savings accounts – what’s the difference?

Bank restrictions. The bank is very limited as far as what it can do with your savings account deposits. Basically, you deposit the money in the bank and receive, in exchange, interest on that amount. The bank is paying you interest so that it can lend that money to other account holders. These other account holders then pay interest for borrowing that money, which is considerably more than what the bank is paying you in interest. The bank pays you your interest and keeps the difference. When it comes to money market accounts, the banks are much less restricted on what they can do with your money. They can take your money and put it into low-risk investments in order to increase their return. The result is that a money market account will offer you a slightly larger interest rate return than a traditional savings account.

Account holder restrictions. Both money market and savings accounts may put restrictions on account holders, which may vary from account to account. For example, it is not unusual to have a minimum balance requirement and/or to be limited to only a certain number of withdrawals per month. These account holder restrictions are based on both government regulations and banking institution policies.

Similarities. Money market and traditional savings accounts are, from the standpoint of a consumer, pretty much the same. Therefore, it is your best bet to choose an account based on the interest it will yield you. If you are banking at a small, hometown bank, then it is almost certain that you will get a much higher interest rate if you go with a money market account. However, if you shop the myriad financial institutions online, you will find that there are numerous accounts of both types that offer virtually the same interest return.

Make the most of your savings by putting it where it will count the most. Now that you know how to compare money market and traditional savings accounts, it’s time to go shopping – for the best account for you, that is.

About the Author: Celine Garramone enjoys her position as a personal finance counselor and accountant. She enjoys helping her clients learn the difference between a Roth IRA compared to a traditional IRA, different types of savings accounts, and living a debt-free life.

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