Should I pick money market account or savings account (if both offer the same APY)

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teelainen
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Should I pick money market account or savings account (if both offer the same APY)

Post by teelainen »

At our bank, both the money market account and savings account is offering the same incredible interest rate.

The only difference between the two accounts is that the money market account allows check writing, which I don't need. Everything else about the two accounts is pretty much the same.

If I don't need the check writing, which account should I choose? My main priorities are safety, being FDIC/NCUA-insured, and not losing my money.
000
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by 000 »

Lack of checkwriting could be considered a safety feature.
gotoparks
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by gotoparks »

Go with the savings account. You might check how many monthly withdrawals you get with each. For some that is a consideration.
SpideyIndexer
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by SpideyIndexer »

Do you mean savings account at a bank vs a money market holding at a financial institution? In which case, FDIC insurance and SPIC are somewhat different.
student
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by student »

gotoparks wrote: Wed May 31, 2023 11:29 pm Go with the savings account. You might check how many monthly withdrawals you get with each. For some that is a consideration.
+1.
radiowave
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by radiowave »

teelainen wrote: Wed May 31, 2023 5:47 pm At our bank, both the money market account and savings account is offering the same incredible interest rate.

The only difference between the two accounts is that the money market account allows check writing, which I don't need. Everything else about the two accounts is pretty much the same.

If I don't need the check writing, which account should I choose? My main priorities are safety, being FDIC/NCUA-insured, and not losing my money.
OP, what is the purpose of the account? E.g. short term cash reserve, saving for a specific purchase, what is the time frame you'll need the money in that account, do you need this money for routine cash flow/bill pay?
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nisiprius
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Re: Should I pick money market account or savings account (if both offer the same APY)

Post by nisiprius »

If it's a bank, it's a "money market deposit account" (MMDA). If, as you say, the interest rate is the same and you don't need check-writing, then the only think I can think of is your guess about what future rates might be.

The only reason for choosing the MMDA is a vague feeling that they are "supposed to" pay higher interest and might some day. The only reason I can think against it is that you need to check whether there is a limit on the number of withdrawals per month. Banks used to be required to impose a six-per-month limit on the number of withdrawals. They are no longer required to, but are still allowed to. And of course you need to compare any minimum balance requirements or the possibility of any nuisance fees.

It is infuriatingly confusing and in my opinion they should never have been allowed to call them that, but be crystal clear on the difference between

a) a "money market deposit account" (MMDA), which you get at a bank, and is just a kind of bank savings account
b) a "money market fund" (MMF) which you get at a brokerage and is a kind of mutual fund.

A MMDA is just a kind of bank savings account. It isn't a money market fund. It really has nothing to do with the "money market." What the name means is historical and goes back to the days when there were caps on how much interest a savings account could pay. It means effectively "a kind of bank account that's allowed to pay higher interest rates in order to compete with money market funds."

"Money market funds" are a kind of mutual fund. You get them at a brokerage. They aren't bank accounts. They don't have FDIC protection. They are regulated, but under a completely different (and looser) set of rules. The situation has always been the same: they are very safe but not as safe as an FDIC-insured bank account. There is some increased concern about them recently: on 3/30/2023 Janet Yellen said
If there is any place where the vulnerabilities of the system to runs and fire sales have been clear-cut, it is money market funds ...post-crisis reforms ... created an incentive for a run in times of extreme stress.
Banking as we know it is intrinsically risky because of "fractional reserve banking," most of your deposits have been loaned out and the bank takes a calculated risk that it can always find the money to meet withdrawals. If it weren't for FDIC insurance, savings accounts would be riskier than money market funds. FDIC insurance makes them safer than money market funds.

Money market funds don't practice fractional reserve banking, if you have 10,000 shares of a money market fund, it is backed with assets that are supposed to be worth $10,000. But there is no equivalent to FDIC insurance. A money market fund is exactly as safe as what it invests in, and no more. The reason why the regulations can be looser, and why FDIC-like insurance isn't needed, is because they are (supposed to be!) 100% backed by very safe assets. A run developed in a big MMF in 2008 because the fund shareholders no longer believed the fund's assets were still worth $1.00/share.

SIPC protection is completely different from FDIC insurance. It only protects against negligence or fraud on the part of the brokerages holding the MMF. And it doesn't protect the MMF itself.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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