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A savings account is money kept in a bank or credit union for safekeeping. Savings accounts earn interest. Typically, people may add or withdraw their money from a true savings account at any time, but may not write checks on the accounts. In this sense, savings accounts, unlike checking accounts, are not demand deposits. Checking accounts are considered part of the M1 money supply. Because it is relatively easy to get money out of savings accounts, savings deposits are often referred to as “near money” and are considered part of the M2 definition of the money supply.
A money market account (MMA) is a special type of savings account offered by banks and credit unions. These accounts are FDIC insured, but require a minimum deposit (averaging between $100 and $2,500) and have strict limits on how money may be withdrawn. Unlike regular savings accounts, MMAs have limited checking privileges, usually three checks per month. A MMA is not the same as a money market fund, which is not FDIC insured. Both, however, are very liquid (easily converted to cash) and are considered secure investments.
Savings accounts are considered very safe and liquid investments, but they typically offer a lower return than other riskier investments.
Banks and credit unions usually lend the monies deposited in savings accounts, charging a higher rate of interest than that paid on the savings accounts. This is one way banks try to earn profits.
National Economics Standard 10: The Role of Economic Institutions
National Standards in K-12 Financial Education: Saving and Investing: Implement a diversified investment strategy that is compatible with personal goals.
National Standards in K-12 Financial Education: Planning and Money Management: Organize personal finances and use a budget to manage cash flows.
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