Comments on: Personal Finance 101: Money Market Accounts Versus Normal Savings Accounts

By: B-flat

B-flat — Thu, 28 Aug 2008 18:23:10 +0000

Note that money market accounts often have variable interest rates, meaning that rates rise and fall as the Fed changes rates. For example, many MMAs now have rates in the neighborhood of 3%, but last fall might have been closer to 5-6%.

A CD’s interest rate is “locked.” Something to consider in these inflationary times.

By: almost there

almost there — Tue, 26 Aug 2008 17:55:16 +0000

@ gr8whyte: Thanks for the USAA info and correcting me on their more restricted membership. I have noticed my savings interest % has gone down quite a bit this year. I use them because of their customer service. If the savings goes lower I will move my savings to ING direct. Currently I have a 0% BT with no BT fee on their mastercard for 18 months. I will pay it off by the end of the term. I agree their loans are too pricy, cars, homes, HELOC, etc. I joined Pentagon Federal Credit Union by joining NMFA, National Military Families Association as anyone can. I am happy with their loans.

By: gr8whyte

gr8whyte — Tue, 26 Aug 2008 15:54:03 +0000

@ almost there : USAA is no longer available to the general public. Sometime in the summer of 2006 or 2007, the board decided to make it only available to military personnel and relatives of. That’s what they told me when I tried to open a checking and savings account with them then. The policy is not explained on their web site. USAA claims 3 day waits on fund transfers; in my experience, it can take up to 4 days. Another sticky wicket is USAA’s policy of not allowing more than outgoing k$5/day EFTs in totality. USAA’s no longer competitive on savings interest rates. They do respond to email but good luck with getting written answers on critical stuff (as with any other bureaucracy).

By: majortom1981

majortom1981 — Tue, 26 Aug 2008 12:41:35 +0000

I am getting 3.06 % on my money market account at my local credit union. Sometime it gets higher then that.

By: Meri

Meri — Tue, 26 Aug 2008 02:26:15 +0000

Thank you to those who replied. Reading some of the responses I guess I have the wrong definition of “emergency.” I’m not on the edge of bankruptcy, but at the same time if an emergency does occur that I need a large amount of money immediately, I guess the best place to have it would be my standard savings account instead of a money market account or an ING account. I don’t have any credit cards, don’t want them, had enough “fun” with them in the past and don’t want to play that game again.

Thanks for the explanation about money markets, Trent. I’m learning a lot from your columns.

By: Stephanie

Stephanie — Mon, 25 Aug 2008 16:23:43 +0000

Keep in mind that the transfer period could be as long as 10 business days. I have an online money market deposit fund with a bank that is not in my state. When buying a house recently, I had to transfer large amounts out of this fund to my regular checking account. The funds were “on hold” for 10 business days because the deposit exceeded $5000. I knew this beforehand, so I transferred well before I needed the cashier’s check to take to closing.

Writing checks directly from the money market deposit account for the emergency expense solves many of the transfer issues. Using credit cards to float the money solves others. As a last resort, wire transfers are also available (for a fee).

By: Karl

Karl — Mon, 25 Aug 2008 15:39:33 +0000

To people questioning the transfer time: if you can’t live for 48 hours while waiting for some cash to transfer from your savings account, why do you even have a savings account? It sounds like you are living on the edge of bankruptcy.

You should be able to live off what’s in your chequing account for the two days. If it is a sudden, large, unexpected bill that needs to be paid instantly, you can always put it on a credit card, and then pay off the credit card in a few days after you get the money out of your savings account.

For anybody with a significant amount of savings, the two day transfer period should not be an issue.

By: doctor S

doctor S — Mon, 25 Aug 2008 15:12:50 +0000

Currently I am the rutt that my emergency fund IS my savings account. A bad practice, I know, but it is what I am faced with at the moment. But what you wrote about is a common misconception and I found myself definately getting my facts straight from your info, especially about which acocunts are not FDIC insured!! Great work!

By: Todd A

Todd A — Mon, 25 Aug 2008 04:05:02 +0000

Unless it has changed substantially since my days in banking, the main distinction of a money market (or savings) account at an FDIC insured bank, is the limitation on certain types of withdrawals. While individual banks may implement a more strict limitation on these transactions than the FDIC requires, the FDIC limitations have a main purpose; determining a reservable amount on those deposits that the bank must maintain for liquidity purposes. Obviously, a bank is required to maintain LESS reserves on a low transaction account (i.e. money market/savings account) than on a “DDA”(Demand Deposit Account, aka checking account). That’s why you see the 3 per month (or whatever it is) limitation on certain money market/savings withdrawals.

By: Lurker Carl

Lurker Carl — Mon, 25 Aug 2008 03:31:47 +0000

@Meri and AJ – In my experiences, the transfer from on-line savings to hometown checking happens within 48 hours. But I have yet to have any sort of emergency where I needed immediate access to my emergeny fund. Unless you are living on the financial edge, instant access to all your cash isn’t necessary.

For me, credit cards have always been sufficient to get the ball rolling in emergencies. That’s why it’s critical to keep cards paid off each month, they provide instant access to lines of credit that have a 3 week grace period with cash-back bonus rewards.

However, there are always infrequent times when you need instant access to money. Don’t depend on the bank being open or an ATM working. It’s better to keep several hundred dollars in small bills on-hand for a different sort of emergency, like when you have to leave home immediately or area wide power outage make electronic transactions impossible.

By: almost there

almost there — Mon, 25 Aug 2008 02:21:52 +0000

Meri@ comment #3: Open up a USAA checking account, you do not have to be affiliated with the militay. They credit any money transfered instantly for the first $1000 of it is more than that. If I deposit a check by scanning it into the account it is credited instantly. Dirct deposits are usually credited the day before the actual date of deposit. The 6 withdrawls per month is the same with them from savings. I believe this is the rule with all savings accounts now.

By: Whitney

Whitney — Sun, 24 Aug 2008 21:53:11 +0000

I can’t say I agree with you when you say money market funds may not be a good place to place your savings in. From what I’ve heard the rates you get on an online savings account are not fixed and can be changed arbitrarily by the bank. Also sometimes after tax, money market funds may actually come out ahead. Here’s a useful link regarding money market funds: http://thefinancebuff.com/2007/04/which-vanguard-money-market-fund.html

By: AJ

AJ — Sun, 24 Aug 2008 21:29:49 +0000

My question is just like Meri’s. How does the transfer period work? I was told it takes three days to transfer $ at the bank I looked into. Unfortunately they were unable to explain the process. Will the $ still appear in my money market account during the three day waiting time? Will it appear in my checking account w/some kind of note attached to it? Will the bank send me an eMail saying the transaction was completed?

Would love to hear from others about how the process works. As a former technical writer (and always anal person) please be specific. Thanks!

By: Richard @ Student Scrooge

Richard @ Student Scrooge — Sun, 24 Aug 2008 20:48:02 +0000

Trent, it is like you were reading my mind — I was just wondering about this earlier today. It is a little surprising to me that there is almost no difference to the end consumer — in that case, it seems like it makes sense to just chase the best rate. Anyway, thanks for the answer!

By: Yuliya

Yuliya — Sun, 24 Aug 2008 17:55:06 +0000

I disagree with “…money market funds, which are an investment vehicle not insured or backed by the FDIC and thus not a place you want to put your liquid cash savings.” Just because they are not FDIC insured does not necessarily mean they are not safe. From what I’ve read, they are safe and a great place for liquid savings.

By: Andy @ bloginyourface.com

Andy @ bloginyourface.com — Sun, 24 Aug 2008 17:52:48 +0000

Yeah, Trent. I love your Sanford and Son approach to writing about such issues, which for me is basically saying “OK, yuh big dummy, this is how it works.” But that is good. I am willing to bet that only 40 to 50 percent of people really know the difference between these two things. I certainly did not before reading your article and I have money in BOTH savings accounts and an online money market account. Sometimes I feel stupid for not knowing where my money actually is but I am glad you put stuff out there like this for people like me.

Are you going to bring back some more Great Debates, too?

By: Desiree

Desiree — Sun, 24 Aug 2008 17:36:45 +0000

I have an ING Savings account for my emergency fund and also an ING Checking account which earns interest too. Both accounts can be viewed when I log into the website. The nice thing about this set up is that I have a debit card for the checking account. If for any reason I need to access my emergency funds in the savings account, I can just log on and transfer the funds to my checking account which I can then immediately withdraw using my debit card. The funds in the savings account do have to be “available” in order for you to transfer into the checking account.

By: cv

cv — Sun, 24 Aug 2008 16:37:06 +0000

It can be hard to tell which type is which, so be careful. My brokerage account comes with a money market checking account with debit card, checkbook, bill pay, etc., and it’s the place that money comes in or our of when you buy or sell securities or receive interest or dividends. However, it’s a money market fund and not a money market deposit account, so it’s not FDIC insured (though it is covered by the SIPC insurance of the brokerage firm). Read the fine print.

By: Stop Getting Cheated

Stop Getting Cheated — Sun, 24 Aug 2008 16:13:55 +0000

Great clarity on this issue, Trent. You have a gift for making complex concepts understandable. Maybe you could extend your services by providing seminars for bank and brokerage employees.

By: Ariana

Ariana — Sun, 24 Aug 2008 15:54:05 +0000

Thanks for the clarification! I tried to get a good explanation from my bank and ended up with a bunch of jarble.