Money Market Savings Account Vs. Savings Deposit Account

Most banks and credit unions offer money market accounts and savings accounts to customer who seek to earn interest on liquid funds. Both account types are covered by Regulation D, which sets parameters for withdrawals from interest-bearing accounts. Consumer and business customers can open regular savings and money market savings accounts.

History

• Savings accounts have existed for centuries. The Knights Templar established the first major banking network during the Middle Ages and account holders earned interest on cash deposits.

  In 1982, Congress passed the Garn-St. Germain Depository Institutions Act, which included a provision for the creation of bank money market accounts. Congress wanted to create a bank-offered alternative to the money market mutual funds offered by brokerage firms as short-term investment options for conservative investors.

Types

• Financial institutions provide regular savings, business savings and custodial savings accounts to customers. Regular savings accounts cater to people over the age of 18, although some states allow 17-year-olds to open accounts. Custodial savings accounts are for minors and people with impaired mental capacity who rely on a custodian to handle their affairs.

  Most money market accounts are stand-alone products, although some banks offer sweep money market accounts linked to checking accounts. Account holders cannot access funds directly from sweep accounts, but funds are swept into the checking account whenever account holders make withdrawals.

Features

• Regulation D allows account holders to make up to six withdrawals from savings or money market accounts each month. Money market account holders can access funds with checks, in-person bank withdrawals, ATM withdrawals or through online transfers. Most banks charge monthly service fees if customers do not maintain average balances of $10,000 or more in money market accounts.

  Savings account owners do not receive checks and cannot directly access funds through point-of-sale machines. Generally, banks require savings account owners to make in-person withdrawals or online transfers. Custodial savings accounts usually have no balance requirements and regular savings accounts normally have minimum balance requirements of $500. Some banks have online savings accounts that have no minimum balances.

Time Frame

• Funds deposited into savings and money market accounts are subject to the same deposit processing times as checking account deposits. Cash deposits and electronic transfers post to accounts the day the bank receives them. Check deposits are subject to holds with only $100 posting on the day the account holder makes the deposit. Banks hold amounts of up to $4,900 for two business days and funds in excess of that for seven business days. Accounts less than 30 days old have hold times of up to nine business days for amounts in excess of $5,000. Some bankers may waive hold times at their discretion.

Considerations

• The Federal Deposit Insurance Corporation insures account holders for up to $250,000 per bank. The FDIC combines the balances of checking, savings, money market and certificates of deposit accounts for insurance purposes. The National Credit Union Administration provides the same level of coverage for depositors at credit unions that belong to the NCUA. Some credit unions are not covered by the NCUA, whereas all banks enjoy FDIC protection.

  Money market accounts typically pay higher rates of interest on balances above $10,000 than savings accounts and most banks have several rate tiers for money market accounts. Money market accounts with balances above $25,000, $50,000 or $100,000 generally receive higher rates of return.