Have you been saving up in a savings account, and you’ve noticed that it is a scam? In case you’re not aware, anytime you save up in a savings account, you’re basically loaning the bank some money. It’s an agreement where the bank helps you to keep your money safe while they invest that money and make a profit from themselves. Read this article by Dave Ramsey to know more about the savings account.
The demerit with putting your money in this type of account is that the bank will make lots of money from you, and they’ll offer you nothing. As such, you might want to look into a money account as a noteworthy alternative.
What is a Money Market Account?
Dave Ramsey accurately described a money market account as an account for saving money that offers you a much better interest rate than the regular savings account. He further explained that a money account allows you to use a debit card and checks—just like a savings account. However, there’s a higher minimum balance that you’re expected to maintain.
Dave Ramsey also reiterated that anytime you open a money market account, you’re authorizing your bank to invest your money in short term debts. As said earlier, a money market account also allows you to:
- Use a debit card
- Write checks
- Make withdrawals
However, you should have it in mind that a money market account will have a maximum number of monthly transactions. In the United States, the legal limit is six transactions monthly, while some financial institutions will set less. Dave Ramsey recommends that you should think about emergency funds and big purchases. Rather than beer runs and grocery trips.
Dave Ramsey claims that the most exciting thing about MMA is that it is very safe. This is because money market investments are often set in the very short term.
What are the benefits of using a money market account?
Below are some points made by Dave Ramsey on the benefit of having a money market account.
1. A money market account is more secured and insured
Unlike money put in other investment vehicles, those put in the money market usually have a lower risk. If you use an institution that’s insured by the FDIC to open a money market account, you can be assured that FDIC insurance protects your funds. Dave Ramsey emphasizes that it’s a very safe way to invest money.
2. It is often easy to access
With no specified maturity date, a major benefit of a money market account is its liquidity. Apart from a money market account, it is rare to see an account that allows you to earn good interest and easily access your funds. This is significant in times when you need to access funds for emergencies. In such an instance, you only need to transfer your money or withdraw it.
3. It gives superior interest rates
Dave Ramsey says that one of the advantages of a money market account is that they offer more interest than an ordinary checking account. Some experts believe that interests from money account will steadily rise over the next two decades.
Is a Money Market Account the best account to Use?
If you’re following Dave Ramsey’s baby steps, and you’re on Dave Ramsey Baby Step 1. Then you should opt for a savings account as it’s a bit difficult to remove your money from a savings account a checking account. Although it still requires discipline to abide by Baby Step 1 since you can still withdraw your funds.
If you’re on Dave Ramsey’s Baby Step 3 (You’re savings some months of your monthly expenses as an emergency fund), that’s great! As that money begins to pile up, you can invest it to earn some interest. This won’t just help you make more money but will help provide the much-needed fund in times of emergency.
Irrespective of your Baby Step stage, you should save up by making use of tools such as budgeting apps to ensure that you stay above the rat-race.
Disadvantages of a money market account
In an article on Dave Ramsey’s website titled “What is a money market account?” He highlighted some major drawbacks of a money market account, and they are:
- Balance requirements: Although, it’s not all MMAs that require that you should have a minimum balance, some banks do. For example, some accounts may require you to make an initial deposit of up to $5,000. You may also be asked to maintain a minimum deposit for the account to be operational. You may be penalized if you fall below the specified fee.
- Limits on withdrawals: Even with the fact that funds can be withdrawn via checkbooks and debit cards, you’re not allowed to withdraw indefinitely. You’re only allowed to withdraw at most six times annually.
- Lesser yields than CDs: Return-on-investment from money market accounts is lower than a CD.
Bottom line
Dave Ramsey believes that a money market account is a good choice for anyone who wants an accessible account that earns a relatively high yield. That said, I will agree with him on this one. You will earn a competitive rate for short-term savings.
However, even with numerous advantages, it also has its demerits. You should examine the advantages and disadvantages of a money market account to make the best choice.