• One, they pay higher interest rates than standard savings accounts, share accounts, or passbook accounts. The interest rates generally fluctuate with changing market conditions.


• Two, they have minimum deposit requirements. Customers generally have to keep minimum balances (say $500 or $1,000) to receive interest payments.


• Three, they have limits on withdrawals and check-writing capabilities. Banking regulations limit total withdrawals to six per month with three of those using checks.


• Fourth, like all bank deposits, they are insured up to $100,000. This is not the case for a primary alternative, money market mutual funds.

Money Market Deposits and M2

Other Savings

• Standard Savings Accounts: These are common savings accounts issued by commercial banks, savings and loan associations, and mutual savings banks. Should a customer enter an bank and request to open a "savings account," this is what they get. These accounts pay a minimal interest rate and have requirements on minimum time for accessing funds, number of withdrawals per month, which may or may not be enforced by the bank.


• Passbook Savings Accounts: These are savings accounts, usually at savings and loan associations and mutual savings banks that are accessed by means of a passbook possessed by the customer. Deposits or withdrawals, along with interest accrued up to that time, are recorded in the passbook at the time of transaction. Such accounts were quite common in the days before computerized record-keeping, but have become less so in modern times.


• Share Accounts: These are basic savings accounts offered by credit unions. Reflecting their status as nonprofit mutual associations, credit unions termed their savings accounts "share" accounts. Share accounts usually pay slightly higher interest rates than standard savings accounts, but otherwise they function much the same.

The Mutual Fund Alternative

A mutual fund is a financial instrument that pools the funds of a group of people to purchase a diversified portfolio of stocks, bonds, or other types of financial assets. A money market mutual fund is one that purchases an assortment of money market financial instruments, primarily U.S. Treasury bills, but also commercial paper and other relatively secure short-term investments.

Although money market mutual funds are relatively secure, that are not insured like money market deposits. However, the mutual funds generally pay an slightly higher interest return than the deposits.

Liquidity Plus