What exactly is a money market account?

[LuckyRobin]

How does it work? And is this a good place to park an EF or not? I'm getting close to the $2000 mark and I'd like to get a bit more interest than my ING savings account is offering, but I don't want to lock it up so I can't use it if an emergency dose arise.

[creditcardfree]

Not the best source...but a pretty good definition.

[RainyDayFund]

Hi! Grats on saving that much for your EF. A money market account is there to keep your money relatively safe, it will yeild a small interest rate (.50%). Rates will vary depending on market conditions. If you are looking to gain more interest than that you might want to look at short term CDs or a regular savings account at a credit union. Credit unions tend to have higher rates than most big banks on their savings accounts.

Hope it helps =)

P.S. Check out Bankrate.com for up to date rates!

[artwest]

An EF should be easily accessible because you will be need it in an emergency, which means you may not have time to cash in Mutual Funds or wait for a CD to mature. Since this is an EF, you should not be too concerned about earning interest, having said that, it is always nice to earn as much interest as possible...but remember to keep your EF easily accessible.

A money market account, interest bearing checking account or even a savings account would be a good place to put your EF.

[LuckyRobin]

My interest rate at ING is .9, so higher than most of the accounts I've found. I think there is one or two out there that get 1%, but not sure it's worth the hassle of changing for .1%. I was just hoping a MM would have 2% or something, but apparently it's lower than what I'm getting at ING. Do interest bearing checking accounts have higher rates than savings? Do you have to write so many checks a month to keep it active? Because I don't want to be drawing money out of the account, I just want to keep adding to it. And locking it up in CD's, which aren't paying that great a rate right now, is something I don't want to do with only $2000. If it were at full amount I'd ladder CD's monthly, but it's not even close to that.

[RainyDayFund]

Some MM accounts do have higher interest rates but the amount of your initial deposit is far greater than the 2k that you currently have.

[yourmoney]

Hey,

There are two kinds of money market accounts. Banks offer FDIC-insured money market accounts that they use to invest in various securities while paying short-term paper rates. They typically offer higher rates than savings accounts and you can write checks on them, but they have withdrawal limitations and higher account minimums. They're good for your 6-month emergency account and large expenditure savings goals once you get to the $5-10k+ range.

On the other hand, mutual funds that invest in short-term paper are called money market funds. They're not FDIC-insured and they're usually offered by brokers rather than banks, but their rates should be a little higher. Since their principal isn't insured, advisers typically don't recommend them for short-term savings or emergency goals. They're better for holding money between sticking them in stock/bond positions.

In a world without low-overhead online banks, money market accounts should offer higher returns as long as you meet the minimum account requirements. But we live in a world where low-overhead online banks have been offering high rates on savings accounts to attract depositors. Some of them offer MMAs at the same rates. It's up to you to look at rates and account requirements to decide what works for you.

Checking accounts rarely offer higher rates than savings/MMA accounts. Banks make less money from them. You can use a tool like bankrate.com to check rates on national bank accounts. HOWEVER, sometimes you can find a local credit union or bank is offering high interest rates on checking accounts when you have a minimum number of direct deposits and debit card transactions. The banks are hoping to make more money from fees than they pay in interest.

I use INGDirect for savings (but have a rarely-used checking account) and a local community bank for free checking. I've regularly told my community bank people that when their MMA offers reasonable rates relative to my online savings account I would switch.

Given your $2000 spot, you're best sticking with your online savings account. Pick an account and don't even look at rates until you see a headline about the Fed raising rates across-the-board (which they're promised not to do for two more years).