Money market or savings accounts – what makes for better emergency savings?

 Having an emergency fund to cushion yourself from a sudden financial crunch is very crucial in order to sustain a healthy life. Now, the question arises of where exactly you can park those funds? There are a number of options that will allow you immediate access to cash when you need it. You cannot invest in certificates of deposit or stock markets and expect to be able to make a killing just when you want the money. Stocks are volatile and the time at which you must exit is not to be decided by you, but the market. Certificates of deposits are fixed funds that will not yield much in shorter periods.

A money market deposit account or a savings account are the only options you have for saving cash that must stay liquid for your own personal reasons. Before we go about deciding which one is better, we must first understand the concepts of money market and savings bank accounts.

Till recently, money market funds have been providing between 0.15% to even as low as 0.05% at times. This is because of the global economic crisis that has struck business around the world and made it impossible for funds to register growth. Savings bank accounts on the other hand are providing up to 1.45% in some special cases such as nationwide bank and the national average is still 1.3% even after the crisis. But before we jump to conclusions, we need to understand each of these investment instruments.

A savings bank account will give you the most liquid investment option. The money remains in the account and can be accessed by using ATM’s, writing checks or through online banking. Your rate of interest will remain constant throughout the period of your account unless the bank informs you in advance that the rates are changing. And the rates will be kept consistent with current market rates, so you do not need to worry about going around looking for better banks. All banks will offer rates that fall within a margin of 0.2% to keep a healthy competition.

A money market account on the other hand will not offer you this level of liquidity. You can write checks only a certain number of times every month. And the way the current market is behaving, you will get very low returns on the same. The best option would be to invest the minimum amount of money in the money market account which is usually $5000 and then if the market picks up, you can always transfer funds from your savings account.