If you’re looking for a good place to park your cash for a while, you may want to consider a high-yield savings account or money market savings account! These options are great for stashing cash that you want to use in the short-to-mid-term, anywhere from a month out to up to 5 years.
When I discuss cash with my clients, many are not familiar with a high-yield money market account so I often get the question “what’s the difference between a money market account and a savings account?”
A high-yield savings account will function as a savings account but with a higher interest rate than your run of the mill account. Standard features of savings accounts include:
A maximum of 6 withdrawals per month/billing cycle. This would include any overdraft fees you might incur
Rarely will you have access to a debit card or checks
If funds are held at a bank insured by the FDIC (or a credit union protected by the NCUA) your account is protected up to $250,000
A high-yield savings account will have the same above features, but will have a higher interest rate than a standard savings account. Usually much higher!
A money market account (NOT a money market mutual fund – this is an investment product not a savings product) often called a money market deposit account has features of both a savings and checking account. Not only are you earning a higher interest rate on money sitting in a money market deposit account, but you will have access to it just as you’d have with a checking account; checks and a debit card should be provided. You’ll still have the 6-withdraw per month limit, but the debit card and checks make accessing your money just a little easier if you need it quickly.
This can be a good or bad thing – if the purpose of your dollars is an emergency fund, you may want a bit more of a barrier between you and your dollars; having a debit card or checks might encourage spending or make spending easier than you’d prefer. But if the purpose of your money is for a revolving fund to pay annual but not monthly bills, having a debit card can be very helpful!
Money market deposit accounts used to have higher interest rates than high-yield savings accounts, but lately that has been less of a distinction between the two.
The bottom line is that putting your cash in a high-yield savings account or money market account is a good move when you’re trying to save for shorter term goals and want to earn some money in the meantime. If you have savings goals, I’d highly discourage you from keeping money in a checking or savings account that is not earning a competitive interest rate! You’re missing out on your money working for you. While checking accounts are perfect for monthly expenses, they aren’t ideal for savings.
Here are some things to look for when choosing an account:
Bank should be FDIC insured to $250,000
No fees
No minimums to open an account is great, but not always possible
Online banks like Ally and Everbank often offer higher interest rates than brick-and-mortar banks.
A quick Google search will show the highest yielding accounts for the current time – use this as a starting point and do your research on the best bank for you.
Since interest rates will likely be variable with high-yield money market accounts, don’t be afraid to move your money to a different bank or account type (savings or CD) if they have a higher interest rate! Opening bank accounts and moving money between them has become very easy. There’s no penalty for opening and closing these types of accounts. But it’s also not necessary to move cash around chasing interest rates if you don’t want to!
Keep your plan simple, and low on BS!
