In banking, not all accounts are equal. For example, some accounts help you spend your money (a checking account) others help you save it. Savings and money market accounts are two examples of accounts that can help you save your money, whether for a rainy day or for a future investment. Admit it, we could all use a little help saving a buck or two!
Savings Accounts
- Earn several times more interest than checking accounts (especially online savings accounts)
- Safe way to save money FDIC insured
- Accessible anytime via branch visit or bank-to-bank transfer but not by check or check card
- Legally limited to 6 withdrawals per month by any means (ATM, branch visit, online tranfser, etc)
- Secure
- Unlimited deposits
If you're the type of person who has a hard time holding on to money (mine seems to be gone as soon as payday rolls around…or sooner), then a savings account is for you. A savings account provides you with a simple, no fuss way to make money as you save it (So whose brainchild is that…you're going to pay me to save my money!?)! You get the benefits without the work! It doesn't take a genius to figure that one out. Once you open the account, your money starts to accrue interest. Interest rates vary depending on the bank you use, the current rates available, and the amount of money you deposit. All you have to do is sit back and wait for the bank to mail you a statement each month (by 'snail mail' or email) that tells you how much interest they paid you. You'll start feeling like a kid in a candy shop!
Another great thing about savings accounts is that you can put your money into the account and, unlike a checking account, you can't use checks or a debit card to access it, so your money stays put! In effect, you put your money in a sealed envelope. Don't worry, that doesn't mean that you'll never see it again. It is available for withdrawal when you need to access it, but the number of withdrawals per month are limited by federal law to six.
If you are the cautious type who doesn't like to stick your head out to the bulls, a savings account is also safe and dependable. Savings accounts are backed by the Federal Deposit Insurance Corporation or the FDIC. Which means that they guarantee your money, even if something were to happen with the bank. As Simba might say “It means no worries, for the rest of your days!”
Money Market Accounts
- Higher interest and traditionally higher balance requirements (online money market accounts are an exception)
- Unlike savings accounts some money market accounts come with checks and/or a debit card – see Ally's money market account.
- Compounded interest rates Increased rates with increased initial deposits are common
- Unlimited ATM withdrawals but legally limited to 6 withdrawals per month by any other means (branch visit, online transfer,check,debit card purchase, etc)
- FDIC insured
- Unlimited deposits
Now take all the benefits of a savings account and pile on the whipped cream and a cherry…you have yourself a Money Market account (MMA)! It's a sweeter deal, if you have just a little more self control. One of the benefits of a money market account include higher interest rates and more frequently compounding of interest than a savings account.
Money market accounts are usually compounded daily and paid out monthly. This means that the interest you earn can be put back into your account to create a larger amount of money to earn interest on the following month. Similar to savings accounts, money market accounts are offered at FDIC insured institutions so you don't have to worry about your bank failing. Money market accounts are a great choice if you need to easier access to your money…(that's where the self control comes in handy). Most provide access via check (limited to 6 each month). Withdrawals are also permitted to a certain number a month. The number of deposits you can make, on the other hand, is unlimited. So, MMA's have higher interest rates, are just as dependable, and easy to access?
In short, choosing a savings account or money market account is a great way to hang your hat. You deposit your money then sit back and watch it grow. Most institutions provide the convenience of online banking so you can even check your funds while you are sitting at home gulping down fresh squeezed orange juice. No more lines or signs reading “next window, please” to keep you from your account information!
Tips for Managing a Savings Account or Money Market Account
A few tips from a friend who has worked at Wells Fargo for years:
- To avoid access fees, make sure you stay within the allowable number of withdrawals per month for your account
- Maintain the minimum balance
- Ask your bank to give you a higher interest rate in return for making a large initial deposit
- Setup automatic deposits from your checking account into your savings account every month at least 10% of your gross income (this is the millionaire formula)
