What is the point of having a savings account if your financial institution offers a money market account?

Question

I have a savings account with my credit union that offers a .050% rate. They offer a money market account beginning at 2.50%, compounded daily.

If your money is as accessible through a money market account, and you can deposit or withdraw money at any time from that account (my CU allows this, as long as I maintain a minimum balance), is there any reason to keep money within my savings account? It seems I would earn more interest by transferring my cash into a money market account.

Answer 1

I have a two point answer for you.

First, you are talking about a cash account. The point of a cash accounts is (1) immediate access to the cash, (2) safety, and (3) if possible some return to "insure" against the loss in the value of money do to inflation.

For cash accounts of less than $100,000 in an FDIC insured bank the bottom line is that it really doesn't matter. So pick the account that pays you the highest interest and has the fewest restrictions. Personally, I'd use a CU checking account and set up an linked online account at ING Direct to function as my "money market account:" no restrictions on withdrawal, no minimums, competitive interest rate.

My second answer to you is even more blunt: savings accounts serve no purpose in the modern world and money market accounts that restrict the number of withdrawals you can make in a month are also relics of the bad old days: don't use either. Cash accounts are not for investment purposes -- on balances of less than $100k, the difference between 0.5% and 2.5% is a rounding error.

Answer 2

I'm like you - I have a credit union with savings and money market accounts that work the same way. The MM has a much higher interest rate, so I keep my money there. However this isnt' the case everywhere. Some places only let you do so many transactions through your money market or have other limitations. But if yours operate exactly the same way then you are exactly right to put it in the MM.

Answer 3

You also need to keep higher balances in money markets to get the highest interest rates. Alot of banks money markets are tiered, so if you're under say $2,000 the interest goes back down to what it would be with just a regular savings account. It is nice to have if you keep high balances so you can earn the extra interest. You can writes checks off money market accounts, but they are limited to a certain number a month.

Answer 4

You are right. If you have enough for the minimum balance, just open the money market account and forget about the savings account. Sometimes the savings accounts are for small accounts like saving for Christmas, vacation, car, emergencies, etc.

Answer 5

As long as you can maintain the minimum balance it may be a good thing for you. Usually the minimum balance is a huge amount with large penalties if you fall below it.

You can look into places like ING Direct which has a 4.2% interest rate and no minimum balance.

Answer 6

There is usually a min balance on a money market account.

Answer 7

Well, everyone's situation is different. It is very clear that you know what you are doing, so transfer your money from savings to a money market account.

Answer 8

some money markets only allow withdrawl on times of the month last 10 days.
save acct is more liquid and if you do not want losts of taxes you can have the lower rate acct.