This is a great question. According to www.thesimpledollar.com, "In the end, for most people, a money market deposit account is essentially equivalent to a savings account."
Back in the 70s and 80s, when the bank used to have to fight to get your money, they used to pay 17% in a money market account. As posted at articles.latimes.com,
"Money funds were introduced in the U.S. in 1971, but they really hit the big time toward the end of that decade, when oil-driven inflation sent interest rates sky-high. Americans got hooked on money market fund yields as high as 17% ..."
Even in the late 90s, you still might find a money market account that paid 5%. Six years ago, one student actually used a student loan to make some money from a money market account paying 5% as noted at answers.yahoo.com. However, today, with direct deposit and people automatically putting their money into the bank out of habit, why would the bank even consider paying a high interest rate?
Money market accounts typcially are used for safe investments such as loaning between banks or collateral backed loans. Savings accounts are typically used for very safe investments as well, so there is not much difference.
Do you have a better answer to describe the difference between these two?
This post was reposted from http://finlit.biz/retirement-2/what-is-the-difference-between-a-money-market-and-a-savings-account/, originally written on January 24th, 2013.
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