Should you to invest your funds in savings account or money market accounts?

Money market accounts have for long been the staple of people who wish to invest their emergency savings. This has always been the trend given the fact that money market accounts tend to offer higher interest rates compared to savings or checking accounts. But with the economic downturn, a lot has changed.

Money market accounts now tend to yield just 0.15% to even 0.05% every week at times. But savings back accounts continue to provide around 1.3% with a few banks even giving out 1.45%.

Before we decide which one is the best option, it pays to understand the basics of each of these investment instruments. A money market account is liquid; this is because you can withdraw funds by writing checks whenever you want. The only disadvantage is that you can make only a certain number of withdrawals every month. A money market account is different from a mutual fund and your principle amount is guaranteed up to a limit of $250000. The yields have lately become very secure due to several changes made in the rules for money funds by the U.S. Securities and exchange commission. And this has resulted in a reduction in the yield.

Now a savings account is different in that you can access your money whenever you want. You will also be promised a certain rate of interest which will not change unless the market changes. And this rate will be on par with what the competition is offering. This ensures that you get the same interest rate that the rest of the savings bank account holders are getting. The money is again liquid and you can access it whenever you want. This provides a lot of flexibility because accessing your funds is as simple as walking to an ATM.

In the current market scenario, it is highly unadvisable to just rely on one investment option. But again, you can just invest in a savings bank account and settle for the interest rate offered by them. It always helps to open a money market account and maintain the minimum required balance. If the market improves or if the fund is doing particularly well, you can always transfer the money from the savings bank account to the money market account. And you will not be charged any fees for the transfer if you have linked the two accounts in advance.