When most people think about saving money, they think about a simple savings account. You might have even thought about getting one yourself. You may already have one, but do you have a strategy in mind or are you just putting money away in hopes of something great down the road? Well, if you are really serious about saving and growing your money but still want access to your money in case of an emergency, then you might want to consider a Money Market account instead.
When it comes to financial services, a Money Market account fits somewhere between a savings account and a CD (Certificate of Deposit). Both have their pros and cons, but you have options. Before I explain the Money Market, let’s discover and define the field.
At the lower end, you have the traditional savings account. A savings account is a basic account that allows consumers to store their money securely while earning a tiny little bit of interest on the side. Yes, the interest earned is low but your funds are usually fairly easy to retrieve when you need it. It’s a nice tradeoff.
On the opposite end of the spectrum is the Certificate of Deposit (CD). This is an account that offers much higher interest, but your funds are locked away for a fixed amount of time. The time varies but can be anywhere from months to years. Access to the funds comes only at maturity of the CD or earlier if you are willing to pay the penalty (which usually negates the point of having the CD).
Some people want something that merges both worlds; a higher interest rate while still being able to have access to the money – just in case. This is where a Money Market account comes in. A Money Market will usually pay higher interest than a savings account, but usually not as high as a CD. However, higher dividend tiers are extended the larger your balances get. And while you have access to your funds, the access is a little more limited than traditional savings. Nevertheless, depending on the institution, some Money Market accounts have the ability to debit or even write checks off of the account. Of course, some institutions may also require a higher opening deposit and a higher minimum balance than a regular savings account, but the interest and access are usually worth it.
Are you still not sure which one is right for you? Why not choose them all and employ each type of account as part of a strategy? For example; a strategy that some have used is putting money away into a savings account until it reaches the minimum deposit requirements of the Money Market. They then transfer that money into the Money Market (and continue to feed it each month) and allow that account some time to grow. After building enough money up, they determine how much money they can live without for a while and then place that amount into a CD Ladder while also continuing to put money away into the already established Money Market account each month. This is not a bad strategy at all.
Regardless of what kind of strategy you employ and if you are committed to the strategy you choose, you will end up with a pretty decent amount in your accounts. In the example provided, your CD Ladder should be providing a decent return while at the same time, you will be feeding your Money Market account which again, provides a higher rate of return than a normal savings account. It won’t be long until you find that it is time to have a serious discussion and financial analysis with your institution’s Retirement and Investment Services Representative who may be able to grow your money even more.
Be sure to read my article titled, “Saving Money – Save over $1300 the Easy Way.”
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