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What’s the difference between a savings account and a money-market account?


A savings account is held at a bank, a savings and loan association or a credit union, and the money you put in one is insured by the government against loss up to $250,000, assuming the institution belongs to the Federal Deposit Insurance Corp., which almost all do. A money-market account is a vehicle typically offered by a mutual fund company that invests in debt instruments with very short maturities such as Treasury bills and commercial paper, which is a type of borrowing done by large corporations. A key difference between deposits in savings accounts and money-market accounts is that the latter are not insured.
Money-market accounts that hold government debt are as safe as FDIC-insured bank deposits. Accounts that hold commercial paper or other corporate debt entail almost no risk of loss, but “almost no” and “no” are not the same thing. While very few money-market accounts have experienced losses of principal, it is not unheard of, and it did happen during the last financial crisis. As a gesture in confidence building, the Treasury Department announced in September 2008 that it would insure existing money-market deposits, but not new ones.
One similarity between savings and money-market accounts is that they pay next to nothing in interest. The average money-market account recently had an annual yield of 0.12 percent, according to the authoritative website. The risk of principal loss is negligible, but 0.12 percent is pretty negligible, too. It’s probably not worth the risk to park your cash in a money-market account rather than a bank to get that kind of return, even if the bank pays you nothing.
-Conrad de Aenlle