People with money market accounts (MMA) have probably realized the time has come for them to find an alternative for saving (or investing) money. MMAs have offered investors a low-risk account to have same-as-cash investments. These types of accounts have been considered a go-to for decades. However, the time for an MMA may have come and gone.
Interest rates on MMAs have been just barely above zero for years Many people leave their money in the account as a type of savings alternative. However, this approach could hurt you in the long run. Money market accounts have lost their value, but have no fear. There are still plenty of alternatives for the MMA.
Instead of opening an MMA, just open a savings account. This seems like an “old” idea. Of course, savings accounts aren’t as exciting as investing your money, but a savings accounts may have a higher interest rate, especially if you don’t touch the money for a period of time. Savings accounts are likely much more accessible as well. Many banks have savings accounts available to their customers. Check to see if your bank offers one.
If you’d like to open a separate savings account with another institution, there are many high-yield savings accounts throughout many different banks. Savings accounts, unlike MMAs, are also FDIC-insured.
Bank Money Market Accounts
Bank MMAs and money market mutual funds may look the same on the outside, but there is one key ingredient that makes them fundamentally different. The traditional MMA and a bank MMA may have similar interest rates. They may even own the same types of assets. However, a bank MMA will likely be FDIC-insured up to $250,000. Obviously, only invest money within a strong financial institution, but when choosing between a mutual fund and a bank MMA, choose the bank’s option. It will provide you piece-of-mind with your investment.
Short-Term Bond Funds
If you don’t need daily access to the money you’d like to place in an MMA, but may need access to it a couple times a month (at most), then a short-term bond fund may be the perfect alternative to an MMA for you. The only thing to look out for with short-term bond fund is the potential fees you may acquire if you take from the fund too often. Sometimes if the funds are held for any less than 120 days, you can meet a 1 to 2 percent fee.
Fixed Income Focused ETFs
Exchange Traded Funds (ETFs) can be the perfect alternative for any MMA. Although these often hold a little bit of a higher risk, ETFs can create a much higher yield than an MMA. You can open a Short Term Maturity ETF and gain access to your money whenever you would like. There are some ETFs that can be traded through apps or online trading companies where the company practically does the work for you (you just put the money in). There are also some more hands-on opportunities.
If you have an MMA and have been looking to take your money and put it elsewhere, there are plenty of alternatives. With interest rates for MMAs so low, changing the way you invest your money may be a smart move.