What type of savings account offers a higher interest rate by allowing the institution to invest the money deposited?

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A money market account is designed to offer a higher interest rate compared to regular savings accounts by allowing the financial institution to invest the funds deposited by account holders. The nature of these accounts typically involves a mix of standard savings features and limited check-writing abilities, which can lead to higher returns.

In a money market account, the institution usually invests in short-term, low-risk securities, leveraging the funds to generate income that can be shared with account holders through competitive interest rates. This investment strategy is what distinguishes it from regular savings accounts, which may not offer the same level of interest due to more stringent regulatory requirements regarding liquidity and investment practices.

Other types of accounts, such as a regular savings account, passbook savings account, and certificate of deposit, have different characteristics. Regular and passbook savings accounts often provide lower interest rates because they maintain high liquidity and do not involve active investment strategies. Certificates of deposit, while typically offering higher rates than standard savings accounts, require the account holder to lock in their money for a specific term, which limits access to funds but often results in better interest returns compared to instant access savings options.

Overall, the functioning of a money market account in terms of investment and interest rate potential makes it the correct choice in this context

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