A checking account will make your money just as readily available as if you had chosen to store it in your wallet. But like the cash in your wallet, the money you keep in a checking account typically will not earn interest.
Stocks and bonds are both popular types of investments, although they aren’t your only opportunities to put your money to work. While they do not offer as high a return on investment, cash equivalent investments such as savings accounts and money market accounts do offer steadier, more predictable rates of return.
What Is the Difference Between a Savings Account and a Money Market Account?
Unlike a checking account, a savings account is not intended for day-to-day deposits and withdrawals. You typically must pay a fee if you make more than a set number of withdrawals from a savings account; alternatively, you may make unlimited withdrawals from a savings account so long as you make them in person, via mail or at an ATM. But a bank doesn’t just rely on more restrictions to incentivize its clients to keep their money in their savings accounts. A savings account also pays an annual percentage yield (APY) – i.e. interest!
In contrast to a savings account, a money market account requires a higher minimum balance requirement. In exchange for this limitation, a money market account pays a higher interest rate and allows more convenient withdrawals.
What Are the Benefits of Savings and Money Market Accounts?
To be certain, nearly all people who have a savings account also have a checking account to manage their day-to-day deposit and withdrawal needs. But whether you open one as a consumer or as the owner of a small business, a savings or money market account offers several distinct advantages over a checking account.
- Earn interest. A savings or money market account puts your money to work! The average APY for savings accounts is 0.33%. For money market accounts, the average APY is one-third higher at 0.44%. In fairness, those interest rates aren’t as high as you could have achieved had you invested your money in higher-risk stocks or bonds. Savings accounts aren’t considered suitable for retirement savings for that reason. But when you want to keep your cash liquid and still wish to receive some interest for it, a savings or money market account often represents your best opportunity.
- Enjoy peace of mind. When you open a savings or money market account at a bank that is a member of the Federal Deposit Insurance Corporation, your account is automatically insured for up to $250,000. That means even if the bank is robbed or fails, the federal government will make certain up to $250,000 of your savings is still available. Compare that to the space under your mattress or the safe in your office. If either of those hiding spots are compromised, then the federal government may provide its condolences for your loss – but nothing more.
- Pay bills automatically. You can set up a savings account to pay bills automatically just like you would with a checking account. If you have ever felt inconvenienced by having to pay your rent and other bills on time every month, a savings account can spare you that hassle. And by ensuring that you are never late with payment, you’ll be able to preserve your credit score.
If you live in Central Minnesota, then the Sherburne State Bank team is available to help you receive all the benefits of opening a savings or money market account. We welcome you to come visit one of our branches in Becker, Monticello or Princeton in person, or contact us today!