Margaret Burnett
Appearances
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Also, like the money market deposit account, high-yield savings accounts are FDIC-insured, so your money is safe.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
With money market deposit accounts, returns are based on interest rates set by the bank. They are generally tied to something called the federal funds rate, and rates can change at any time. That said, when you make your deposit, you typically know the rate you can expect at least as of the day you make that deposit. And what about high-yield savings accounts or really any savings accounts?
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
High-yield savings accounts work the same way as money market deposit accounts. Interest rates are set by banks and can change based on the market environment. Again, these are both different from money market mutual funds. Their returns are based on the performance of the securities the funds invest in, like Treasury bills. And these returns are called a yield.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
It's worth noting that future returns in a mutual fund are not guaranteed.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Here are a few things to think about. First, fees and minimum balances. You can find high yield savings accounts that don't charge monthly fees and don't have minimum balance requirements. Money market mutual funds may charge an expense ratio, which is essentially a fee for the fund, and they may also have minimum balance requirements as Erin noted above. Next is your returns, of course.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
The higher your yield or the more interest you earn in the savings account, the faster your balance can grow. And finally, you'll want to think about access to your money. With savings accounts, if you have an ATM card, you may be able to go to an ATM machine and withdraw money instantly. Or you could set up an automatic transfer that can be sent to a linked account within a day or so.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Money market deposit accounts, those savings accounts, work similarly, with some giving you the ability to write a few checks each month.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Some money market mutual funds do let you write checks as well, but there may be a minimum withdrawal requirement. Otherwise, to access your money, you may need to sell shares and that could take a day or two to settle. I'll note that the savings accounts and money market deposit accounts with the highest rates do tend to be online accounts.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
So going to a local bank branch to withdraw money usually isn't an option. So you'll want to take that into account when making a decision about which one to open.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Here's an important distinction. Banks market deposit products like checking accounts, savings accounts, and money market deposit accounts. They're FDIC insured for customers. Investment companies, on the other hand, market money, market mutual funds. To be fair, these mutual funds are considered low-risk investments, but they don't come with insurance or guaranteed returns.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Also, I should point out that some banks have investment arms, so it's possible to see both types of products under a similar brand, but the bank side would not market a mutual fund and the investment side would not market a deposit product.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
FDIC insurance is a safety net that guarantees your bank deposits up to $250,000 per depositor per bank. So even if the bank goes under, your money is protected. Now, there are regulations for mutual funds, but funds don't have that FDIC guarantee.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
In general, I'd suggest folks poke around with a savings calculator to see how much you could earn with a rate of 4.5%, for example, compared with a rate of, say, 5% or 4%. Depending on how much money you have in your account, an account with a slightly higher rate may not net you that much more.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Absolutely. This is especially true when you consider any fees that could be taken out of your returns with a money market mutual fund, for example.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
That's very true. A couple of different issues here. And my answer to both is to shop around. It's not a given that money market mutual funds, which again are investment accounts, always offer better results than the best high yield savings accounts.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
You'll want to check out up-to-date lists of the top high-yield savings accounts and money market deposit accounts because you may find some that offer better rates compared to the yields on money market mutual funds. In addition, if you know you won't need the money right away, you can consider looking at a certificate of deposit.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
If rates fall, then locking in today's CD rates could ultimately give you a better yield than all of the previous options. The key is you generally won't be able to make a withdrawal with CDs until the term is over. So say for a one-year CD, you'd agree not to make a withdrawal for one year.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Overall, depending on your goals, a CD, a high-yield savings account, money market deposit account, or money market mutual fund could be the right choice.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Thank you.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
Thank you for having me. I'm glad to be here.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
This is a great question, Sean, and I'm happy to answer it. But there is a point I'd like to clear up first in the terminology, because money market means different things depending on the context. So a money market mutual fund, like the Vanguard Federal Money Market Fund, is an investment product. It's offered by a brokerage, not a bank.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
As a mutual fund, it pulls investors' money into low-risk, short-term securities, so think government securities such as treasury bills. This fund is not FDIC insured. That's the key difference. A money market deposit account, on the other hand, is a bank product. It is a savings account that can sometimes come with check writing features. But importantly, it is FDIC insured.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
This means your money is protected by the federal government and you can open one at a bank.
NerdWallet's Smart Money Podcast
Rising Insurance Costs and Choosing the Best Savings Account for Your Money
A high-yield savings account is also a bank product. It's simply a savings account that pays above average rates. So, for example, the national average rate for savings accounts is currently less than half a percentage point. But you can find high-yield savings accounts that offer more than 4% annually.