In the past decade where you kept your excess cash didn’t matter much. Interest rates were low so whether you kept your monies in a checking or savings account, a money market account, short-term CDs, or even tucked away somewhere in your home, you earned zero or close to zero in interest. Now, with rising interest rates, there is suddenly a marked difference in the amount of interest you can earn depending on where you park your money. National bank rates for savings accounts have not changed, remaining around 0.09% for deposits of less than $100,000, and 0.16% for money market accounts (according to the FDIC website as of December 26, 2018). However, other types of cash accounts are reflecting these rising interest rates in the interest they pay savers.

On-line banks, such as Ally, Synchrony, Capital One, American Express, and Discover, as of December 28, 2018, are paying around 2.1% in interest on their money markets accounts. This rate will adjust to both rising and decreasing interest rates. They are relatively easy to set up on-line and link to your checking account for easy transfer back and forth, and these accounts carry FDIC insurance up to $250,000 per depositor, per FDIC-insured bank, per ownership category.

Another alternative to brick and mortar bank accounts is money markets funds offered through mutual fund companies. In our offices, we typically use American Funds, Oppenheimer, or Franklin Templeton. We can link these accounts to your checking account for easy transfer back and forth, just like with an on-line bank. In addition, you will be issued a checkbook which you can use to write checks of usually $500 or more directly to most payees. As of December 28, 2018, these money markets were paying around 1.75%. Like the on-line banks, money markets will adjust their rates to reflect rising and decreasing interest rates. Mutual fund money markets are not covered by FDIC insurance.

It’s time to take a look at where you are keeping your savings because where you keep your savings can make a difference. Investigate the on-line banks or contact us to help you set up a mutual fund money market.

 

 

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency; although the fund seeks to preserve the value of the investment at $1 per share, it is possible to lose money. Non-bank deposit investments are not FDIC- or NCUA-insured, are not guaranteed by the bank/financial institution, and are subject to risk, including loss of principal invested.