Should you put your money into savings or a money market account?
Personal finance can seem overly complicated, but deciding where to park your cash doesn’t have to be. The difference between savings and checking accounts is pretty clear – one is for a rainy day, and the other holds money to pay bills. But what exactly is a Money Market Account?
Knowing The Basics: Savings Accounts
A savings account is a bank account where the primary purpose is to accumulate money that will sit dormant for a period. Savings accounts pay a small amount of interest, usually pretty close to zero, but are safe investments, especially with FDIC insurance that covers your account. Other options are available for those who are looking to earn more interest.
What Is A Money Market Account?
Money Market Accounts are savings accounts that have higher interest rates. The purpose of the account is the same. A Money Market Account is a tool for saving and low-risk investing. These still offer FDIC insurance, but because certain restrictions are placed on the accounts, higher interest is possible.
Balance Requirements Differ Between Accounts
There are minimum balance requirements, such as $5,000. If your balance drops below this minimum threshold, there is usually a penalty or service charge assessed to your account. This fee would likely be higher than any interest you might be earning in the account. To get the most interest, your access to the funds would also be limited.
Check-Writing Abilities Differ Also
Your ability to access the funds is also limited, such as only six checks or withdrawals each month. The access is not as limited as in a Certificate of Deposit, which locks the account for a period of time. But if you need to dip into your savings a lot, a Money Market Account might not be the right place to park your cash.
Choosing The Right Time To Open Money Market Accounts
Since interest rates are creeping up, Money Market Accounts may start looking more attractive for those looking for low-risk and moderate return. Think of a Money Market Account as a hybrid between a checking account and savings account. If you can manage only a few withdrawals and can maintain a minimum deposit, you can earn a lot more than if you left the cash in a simple savings, and a lot more than if you just keep it in the piggy bank.