Ask:
A while ago someone was talking about a money market savings account for their emergency fund of $1000. Something about it paying a higher interest rate that a standard checking account but still being easy to access. Does anyone know how this type of account works?
I would like to earn the extra money on interest but dont want there to be any chance of losing it or having a penalty if I need to withdraw the funds. Any advice would be great.
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I don't know about money market. But I have the emergency fund in ING Direct online savings account and the savings rate is great! (mine right now is 4.5% but I think they have promotions where you can get higher when you join at times)
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A money market account is set up like a regular savings account, but requires a minimum deposit, usually a few thousand dollars. It is tied into the stock market, bonds, and other index type funds, but, unlike a mutual fund or a stock, it cannot lose value because it is FDIC insured. They usually return a yield of around 5% but that varies from bank to bank. The only real downside is they only allow from three to six withdrawals per six month period. But again, that varies.
ETA: My husband wrote that. He was sitting nearby when I read the original question and so I asked him about it. He got frustrated trying to explain it to me so he wrote the above. Just explaining since I personally have NO knowledge on this subject.
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Thats a great explaination, cuz I was wondering what the diffrence was myself.I wanted to try and open one up this year, but didn't even know what it was, other than it got a high interest.
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Originally Posted by Mama2mygirls
A money market account is set up like a regular savings account, but requires a minimum deposit, usually a few thousand dollars. It is tied into the stock market, bonds, and other index type funds, but, unlike a mutual fund or a stock, it cannot lose value because it is FDIC insured. They usually return a yield of around 5% but that varies from bank to bank. The only real downside is they only allow from three to six withdrawals per six month period. But again, that varies.
That is pretty close - only I just opened a money market fund and they do not lose value (or never have), but the posibility could exsist because they are not FDIC insured.
Here is what Dave Ramsey says in Financial Peace "Money market mutual funds are low risk money market accounts that you can write checks on and are great for emergency funds."
I opened a Prime Money Market account at Vanguard a few weeks ago. It get approx. 5.8% interest. I have unlimited check writing abilities, but the minimum check amount must be 250.00 (I figure if I need too I'll write it for $250.00 and just deposit a check for what I do not need back into the account - for example if I need $125.00 I'll write a $250.00 check and deposit it into checking and then from checking write a $125.00 to deposit back into the money market - it might be a bit complicated, but it is my emergency fund and I DO NOT plan to use it.)
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Dh double checked and found this:
"Like other bank accounts, the money in a money market account is insured by the Federal Deposit Insurance Corporation (FDIC), which means that even if the bank or credit union goes out of business (which is very rare) your money will still be there. The FDIC is an independent agency of the federal government that was created in 1933 because thousands of banks had failed in the 1920s and early 1930s. Not a single person has lost money in a bank or credit union that was insured by the FDIC since it began."
I think we just had a miscommunication. There is a difference between a money market account and a money market mutual fund. You are right, a money market mutual fund is not FDIC insured and works differently as far as taking money out and such.
Here's a link that explains the difference:
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We use EmigrantDirect for our emergency fund. They pay a high interest rate (currently 5.05%). No minimums, no fees. I love 'em! They even sent us surprise freebies (including notepads and a baseball cap) every so often.
ChemLisa
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What about a pay-pal account? I saw today it was paying 5.85%. Does anybody deposit $ into theirs and let it accrue interest?
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WOW you ladies are a wealth of knowledge. The interest rates some of you have on your accounts is ensough to make me cry. We have (are you ready for this) 1.75% interest and that is the highest offered at our bank in a savings account without going to a CD which is licked in for a set number of months. I have got to get off my behind and do some calling around. The $250 min balance does not scare me since I want to try and leave at least $1K in there at all times. (Note I said try here)
Thanks for the information I will let you all know what I find out on the phone today and what we decide to do with the money.