Should I keep my savings in a money market account?
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
Fees and APYs. Typically, a brick-and-mortar (or traditional) bank's money market account has higher monthly service fees but offers a better interest rate compared to its savings account.
Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.
When saving for a financial goal, it's important to make sure you're utilizing the most beneficial investment type for your goal based on its time horizon. Money market funds make the most sense for short-term goals and generally should not be used for long-term investing, such as retirement.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
I suggest a Money Market account with no penalties and full check-writing privileges for your emergency fund. We have a large emergency fund for our household in a mutual-fund company Money Market account.
Because they invest in fixed income securities, money market funds and ultra-short duration funds are subject to three main risks: interest rate risk, liquidity risk and credit risk.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
Both high-yield savings and money market accounts enjoy FDIC insurance up to $250,000 per person, per bank, and per account type, making them among the safest choices for where to put your money.
Money market funds can protect your assets during a recession, but only as a temporary fix and not for long-term growth. In times of economic uncertainty, money market funds offer liquidity for cash reserves that can help you build your portfolio.
How safe are money market accounts right now?
First and foremost, money market accounts are typically safe because they're insured by the federal government. If you open a money market account at a federally insured bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your cash per bank, per depositor.
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund.
How much is too much cash in savings? An amount exceeding $250,000 could be considered too much cash to have in a savings account. That's because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category.
- Returns May Be Lower Than Other Investments. Investing is all about netting potential returns. ...
- Your Financial Institution May Limit Convenient Withdrawals. ...
- There May Be Minimum Balance Requirements.
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency.
The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.) saved up for emergencies, such as unexpected medical bills or immediate home or car repairs. The guidelines fluctuate depending on each individual's circ*mstance.
While most retirement accounts focus on index funds, stocks, bonds and other assets, you can actually park your retirement money in an FDIC-insured money market account as well. This offers you the liquidity of a savings account while earning a higher yield on your money.
Types of Money Market Funds
Government funds must invest 95.5% of their assets in government-issued securities and consequently are extremely safe. Municipal money market funds invest in municipal bonds issued by municipalities and municipal agencies, which pay interest exempt from federal income tax.
For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.
How much should a money market investor be concerned with that risk? Smith: Since their introduction in 1971, money market funds have broken the buck just two times. The first was in 1994, when a fund was liquidated at 96 cents per share because of large losses in derivatives.
Why would you not invest in a money market fund?
While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.
Money market accounts tend to pay you higher interest rates than other types of savings accounts. On the other hand, money market accounts usually limit the number of transactions you can make by check, debit card, or electronic transfer.
They attempt to keep their net asset value (NAV) at a constant $1.00 per share—only the yield goes up and down. But a money market's per share NAV may fall below $1.00 if the investments perform poorly. While investor losses in money market funds have been rare, they are possible.
- Quontic Bank: Earn up to 5.00% APY.
- Redneck Bank®: Earn up to 5.05% APY.
- Republic Bank of Chicago: Earn up to 5.21% APY.
- Sallie Mae: Earn up to 4.75% APY.
- UFB Direct: Earn up to 5.25% APY.
- Vio Bank: Earn up to 5.15% APY.
- ZYNLO® Bank: Earn up to 5.00% APY.
Money market funds should be used as a place to park money temporarily before investing elsewhere or making an anticipated cash outlay; they are not suitable as long-term investments.
