Choosing Money Market Funds over Savings Accounts

Choosing a money market fund over a savings fund in reality is all about what you are looking to accomplish in your investing. While the large majority of people have savings accounts where they place their money, money market funds are becoming more popular for the more educated investor.

The major reason why most people still use a savings account isn’t because it provides a better interest rate, it is purely because the savings account is simple. Most people already know everything that they need to know about a savings account, their money stays liquid, and they can easily access it at any time. They generally get these from the bank they’ve been doing business with for years and they never really thought about the many other options available to them. While working as a banker a few years bank, it was incredible to see the number of people that would have hundreds of thousands of dollars in low interest savings accounts. This definitely wasn’t benefitting them, but when I told them about the variety of options available to them, most had never even realized anything else existed beyond the standard stock market options. I think the reality is that most people don’t know, and they don’t think about asking. They just keep their money where it is.

With a money market fund, it is done quite a bit differently than a savings account. While most savings accounts are held to a rate determined by the current interest rates in the country, they offer a substantially lower potential of return than that of a money market fund. Generally a standard savings account ranges from .5% to sometimes as high as 5%, but that is extremely rare. I would say most people have a tiny percentage that they are receiving and they don’t even realize it. The money market fund is different however. It does come with inherent risks, but these risks are offset somewhat by investing in relatively stable investment products. These funds invest in Certificates of Deposit, Solid businesses with stable histories, bonds, and a variety of other products that have a lot of stability and better returns.

The reality is that if you are still in a savings account, you need to cconsider the move to a money market fund. There is a slight risk, but you just aren’t making the interest rate that you truly deserve with your current account, so take a step and do something better for your future.