It’s typical for people to want to invest their money or just save it; sometimes investing in CDs and Bonds seems a little scary and savings accounts may seem like the safe way to go. If you just want to start a savings account and have a chunk of money to put away, it’s a good idea to think about interest rates and your options when saving.
A standard savings account requires little to no minimum balance but the interest rate, depending on the economy, is typically less than 1%. So even though you’re usually not paying or at least not paying much to invest your money, you’re not making much money in a standard savings account. Financial institutions pay you interest rates to keep your money in their accounts to they can lend it to other people but mainly, standard savings account rates are so low that the money you‘re putting away is literally just sitting there while the financial institutions are making a higher interest rate lending your money out and meanwhile, giving you a lower interest rate in return. Sounds kind of crazy when you think about it, huh?
Money Markets Accounts (MMAs) are becoming the trendy way to save, especially now when interest rates are at an all-time low. There are a few standard stipulations to MMAs, but the perk can be two to three times the interest rate than a standard savings account. Banks and credit unions are the easiest places to start a MMA account and the minimum, depending on the interest rate, is usually around $1,000. The higher the minimum, the higher the interest rate – so if you’re minimum account balance is $2,500, you’re interest rate, depending on the bank and economy can be as high as 3%. It really depends on how much money you’re willing to put away and not have access to. If you think about it, it’s an even better way to save than a savings account because you can take as much money out of a standard savings; an MMA discourages you from being able to drain your account for an impulse purchase because you have to keep that minimum balance.
For example: If you have $7,000 you do not want to spend and $3,000 of it you’re adamant about not touching for a long period of time, than find a bank that has a minimum of $3,000 and deposit your entire savings. This way, you’re making interest on all of your money at a much higher rate with a minimum deposit you have no intention of touching in the first place. Additionally, the restrictions and higher minimum on MMAs discourage your from making regular transactions on your account like you would do with a typical checking account.
How is this possible?
MMAs are slightly different than a standard savings where banks and credit unions are lending money to approved borrowers. An MMA is money that is invested in government and corporate markets, which means as a MMA investor, you’re getting paid the current interest rate in the money market and not from current bank interest rates. Being able to invest money with higher rates has a slight downfall because banks have to restrict how much money is being taken out of the market. Financial institutions can sneak around the legal restrictions of these accounts by structuring it like a savings (so you get interest) instead of a checking (where you get low to no interest). Because of these restrictions, money markets are structure like savings account regulations – with withdrawal limits (usually 6) and total transaction restrictions per month.
Where to go to find a Money Markets or Savings Account
Many times and depending on the financial institution, MMA and savings accounts have the same or comparable interest rates; in some cases it can be just as profitable to put your money in a standard savings. But for the most part, a MMA will have higher interest rates if you know where to look. Bankrate.com and Consumerismcommentary.com give you current information on which banks and financial institutions are giving the highest rates on MMAs and Savings Accounts. If you’re going to put your money in a bank, do a little research and see what bank will give you “more bang for your buck.” Now that’s money in the bank!