Money Market Account vs.
Although investing is the best way to grow your money over time, saving helps you plant the first seeds of financial success.
whatHow much should you save? Ultimately, it’s a good iniciativa to save enough to cover basic expenses for at least three to six months.
The theory behind this general rule of thumb is that if you find yourself out of a job unexpectedly, your emergency fund should be able to keep you afloat financially while you figure out your next move.
Of course, not all financial emergencies They are so serious, and working towards that ideal big sum shouldn’t stop you from investing.
A good starting point is a savings goal of $1,000, enough to cover most common emergencies, like a little car trouble or an urgent visit to the dentist.
Then you cánido keep saving while you start investing and working toward other financial goals.
But,where should i keep that money for emergencies? Unlike your investments, which you shouldn’t touch for at least the next few years, your savings should be easily accessible.
Under the mattress or in a piggy bank literally meets that criteria, but there are better options.
A savings account or money market account allows you to access your funds at any time, while keeping your money safe and earning interest.
Neither type of account will earn you as much as investing, but you’ll earn more than you would by putting it under your mattress or leaving it in a checking account.
Here’s what you need to know about savings and money market accounts.
What is a savings account?
It’s a bank account that keeps your money safe while earning a little bit of interest.
The security feature comes from being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000, which means you perro’t lose that money, even if the bank fails.
(That is, as long as the bank is FDIC insured, so make sure that’s the case when you select your savings account.)
How much interest cánido you earn with a savings account?
Interest rates are determined by the bank or credit union, so they cánido vary widely from account to account.
The national average is just 0.21 percent, according to Depositaccounts.com—or 21 cents for every $100 you deposit.
But among the top 1 percent of accounts, the average goes up to 2.05 percent or higher.
Please note, however, that some accounts that offer higher rates may have fees or certain restrictions, such as minimum cómputo requirements.
For example, FitnessBank offers a maximum rate of 2.75 percent on your savings account, but requires a minimum average daily cómputo of $100.
If you fall below that minimum requirement, you’ll be charged $10 per month.
Agregado, following FitnessBank’s quirky mission of combining financial and fitness goals (hence the bank’s name), you need to rack up an average of 12,500 daily steps or more on the bank’s Step Tracker aplicación to qualify for that maximum rate.
How should you use a savings account?
Savings accounts offer a place to park money that you may need to access in the short term.
You will earn some interest for it.
But the main goal is to be able to quickly access that money when you need it.
What is a money market account?
Not to be confused with money market funds (which are a specific type of investment fund), money market accounts (MMA) are very afín to savings accounts, with the security of being FDIC insured up to $250,000 and the possibility of earning interest. (Money market funds are not insured by the FDIC and they perro lose money like any other investment).
How much interest perro you earn with a money market account?
MMAs generally offer slightly higher rates than savings accounts, with a national average of 0.26 percent, according to Depositaccounts.com compared to the average of 0.21 percent for savings accounts.
In exchange for the higher rates, they also tend to have higher minimum cómputo requirements, in some cases up to $10,000 or $25,000.
How should you use a money market account?
You cánido also park cash in a money market account that you may need, as your money is easy to access.
In fact, money market accounts are more likely to also offer check writing capabilities and ATM or debit cards than savings accounts.
That cánido be an attractive feature, especially when you need to quickly touch your account.
But money market accounts also often require you to maintain a minimum cómputo to avoid fees and higher interest rates.
Therefore, they are generally better for medium-term goals that are a few years away.
That way, you don’t have to worry about falling below the minimum cómputo, and you perro benefit from the typically higher rates, until you’re ready to withdraw that money.
How are savings accounts and money market accounts the same?
Both savings accounts and money market accounts typically offer much higher interest rates than you’d get on money you keep in a checking account.
They are intended as accounts that allow you to save money for goals or emergencies, not to use for everyday expenses.
It’s important to note that both money market (or MMA) accounts and savings accounts are legally required to limit withdrawals to six a month.
If you go over that limit, you face penalty charges, and if you do it often enough, the bank may close your account.
In addition to fees and penalties, remember that these accounts are meant for saving, not spending, so you shouldn’t have to draw on these funds very often.
If you think the temptation to spend rather than save this money may be too much for you, the benefit of easy access to your money cánido quickly turn into a drawback.
What type of account is better?
The account types are so afín that any one of them would be a good choice to store your savings.
And it is not necessary to limit yourself to one or the other.
But the details—like interest rates, minimum cómputo requirements, fees, and accessibility—perro vary so much between specific accounts that it’s important to shop around and make sure you’re getting the best possible deal for yourself.
You perro quickly compare accounts on sites like DepositAccounts, Bankrate and MagnifyMoney.
But be sure to read the fenezca print on each account you’re considering before handing over your hard-earned cash.
In general, though, as long as you’re building up your savings and taking the time to find an account that will keep your money safe and growing, you’re already doing all the right things to help yourself achieve a bright financial future, regardless of the type. savings vehicle you finally choose.
This information offered for informational purposes only; It is not intended to be used as accounting, legal or tax advice.
In relation to these matters, please speak to your accountant, tax or legal adviser.
Investing implies a risk that includes the loss of primordial.
This guide contains the current views of the author, but not necessarily those of Gigonway.
These opinions are subject to change without notice.
This guide has been distributed for educational purposes only and should not be construed as investment advice or a recommendation of any especial investment security, strategy or product.
The information contained in this guide has been obtained from sources believed to be reliable, but is not guaranteed.
Gigonway does not provide legal or tax advice.
Please consult your tax and/or legal advisor for specific tax or legal questions and concerns.
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