When they compare money market accounts, financial pros often start by asking a series of questions:
- "What do you plan to use this money for, and how quickly will you need it?"
- "How can you earn the most on your principal?"
- "What are the risks associated with this investment or savings product?"
- "If you make a certain choice with your money, what other opportunities might you lose?"
For some professionals, the decision about where to park the bulk of your emergency fund savings is an easy one: "Look for a money market account that offers the highest rate possible with the least risk," Justin Krane, a certified financial planner and head of Krane Financial Solutions in Los Angeles, told Ally Bank. Krane said he likes money market accounts because they are safe, simple, and customer friendly. When rates are low, he says, “people are often shocked at how little their savings are earning. So often, they're tempted into other investments, like money market mutual funds or even bond funds, which they want to believe are just as safe."
Although such funds may be lower-risk than other investments, they're not risk-free. "Why take a chance of a bond fund declining 5 percent," he asked, "when it's only likely to earn you a percentage point more, anyway?" By contrast, a money market account such as the one offered by Ally Bank earns a competitive interest rate and all deposits are insured by the FDIC up to the maximum allowed by law.The money market comparison process becomes more complex when you consider what is best for your longer-term savings. The low-risk nature of money market accounts appeals to conservative investors, but that safety still poses risks of its own, the pros say. "Sitting with cash feels good," Keith Burck, an advisor with Alerus Securities in Fargo, N.D., and a member of the Society of Financial Services Professionals told Ally Bank. But he adds that it's still important to make sure you maximize the earning potential of your cash.
To do that, Burck recommends putting three months of your emergency living expenses in a money market account with the highest rate available—but one with no monthly maintenance or hidden fees—and another six months of emergency savings in a short-term certificate of deposit (CD), if you can find one that pays even more. Moreover, you could consider building a CD ladder with "rungs" that include Ally Bank Raise Your Rate CDs so that a good portion of your cash savings earns a competitive rate of interest until you need to use it. With Raise Your Rate CDs, you have the option of a one-time rate increase if our Ally 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our Ally 4-Year CD rate goes up. According to Burck, "It's important to start looking at that money not only as emergency savings, but as investment capital." So for example, if you've put part of your emergency fund in a CD ladder, you can periodically access the interest you've earned and use it elsewhere in your portfolio, rolling the principle back into your CD ladder for a rainy day, earning interest until it matures again.
Now you can start saving like the pros—visit Allybank.com or call live, 24/7 customer support at 877-247-ALLY (2559) today.
Ally Bank, member FDIC