Your Savings is Going to a Better Place

Most of us rely on regular bank savings accounts to hold our most short term money—savings that might be accessed in 30 days or less. Worse alternatives exist—the mattress, the coffee can in the freezer, or maybe that fake Coke can with the screw-off bottom.

Better alternatives exist too, and I’m speaking of money market funds. They pay about twice the going interest rate of your bank, and the rates keep rising along with the fed funds rate. The only drawback to these funds is the fact that you’re taxed on your interest at the end of the year—not a good choice for large amounts of money, but good enough (and liquid enough) for stashing an emergency fund, three to six months’ worth of savings, or even just the minimum to open the account.

To see what I’m speaking of, go to Bankrate.com’s money market comparison page.

This money can be accessed with a checkbook, a debit card, or a regular ATM card issued to that account, so getting to your money is easy and convenient—great in times of emergency.

This is something to think about in a time of rising interest rates and stagnant interest payouts at the local banks.

If you live in natural disaster-prone areas where large-scale power outages occur for days at a time (like Florida), you may even want to open that money market account in a different area of the country so you still have access to working banks. In this internet day and age, you can open an account anywhere in the country, and still have access to your money via ATM or debit card.

CDs pay even better interest rates, but the drawback here is a distinct lack of liquidity—you can’t just cash them in on a moment’s notice. When the term says 30, 60, or 90 days, they mean it. The rate they’re offering you is for locking that money up for the specified number of days without access. This is great for storing money above and beyond your emergency fund or “mad money” that you won’t need to get your hands on for awhile, but you aren’t ready to join the mutual fund or stock market big leagues.

By all means keep some money in your local bank—you’ll need it for credit checks and possible future loan needs, but do consider moving the rest of your money to a better place—and I don’t mean heaven or a hole in the backyard.