Should You Have Your Checking Account and Money Market Account at the Same Bank?
November 06, 2009
Checking Accounts and Money Market Accounts: Better Together?
Choosing the best bank accounts has always involved a balance between getting the best interest rates on your money and convenience. Two deposit accounts that illustrate how tough it can be to find that right balance are checking accounts and money market accounts.
Checking Accounts vs. Money Market Accounts: Convenience vs. Interest Rates
Typically, checking accounts are more convenience-based than any other type of bank account. People want checking accounts for easy access to their money, and accessibility can come in the form of limitless check writing with no fees, lots of ATM machines around town, and a local branch that you can walk right into.
Money market accounts, in contrast, are primarily interest rate-based, designed to appeal to savers who love making more money with their money. The best money market accounts may pay, for example, 1.5% interest, whereas a typical checking account may pay 0.1% interest or less.
Any bank worth its salt wants you, the customer, to hold both types of deposit accounts with them. But is this the right strategy? Consider the pros and cons.
Benefits of Holding Both Accounts at the Same Bank
If you agree to have a checking account and a money market account at the same bank, you may enjoy some appealing benefits, including:
- Easier linking between your checking account and your money market account.
- A higher interest rate on your money market account.
- Better interest rates on other bank products, such as CDs and mortgages.
If your bank does not offer one or more of these perks, don't be afraid to ask. When you have a checking account and a money market account at one bank, you are a true customer of that bank, and that bank will likely fight hard to keep you happy. Bankers' eyes light up when they see $25,000 in a money market account. You can use that to your advantage.
Benefits of Separating Accounts Between Banks
On the other hand, keeping your checking account and money market account at different banks may have advantages too. For instance, you may find that you can get a better money market account rate at one bank and more convenience from a checking account at another. Nothing wrong with that.
A less obvious advantage to splitting your accounts between banks has to do with risk management. Especially if the money in a money market account represents years of saving your hard-earned cash, you want maximum safety for those funds. Yes, FDIC insurance covers money market accounts up to $250,000 per depositor per bank, but FDIC insurance is something that you don't want to have to think about using. Better to work with a bank that's solid as a rock.
Larger banks with problematic balance sheets, such as Bank of America and Citigroup, may not be the best money market account option at this time. However, these same large banks may be great for a checking account because these banks have ATM machines everywhere, meaning fewer transaction fees.
Set Up Accounts According to Your Financial Situation
Evaluating whether to hold checking and money market accounts at the same bank or at different banks will depend on the relative importance you place on specific benefits and how you access your deposits. Maintaining your checking account and money market account at the same bank can give you valuable benefits, but also consider that such an arrangement is not the best option for everyone.
Source:
Checking Account Interest Rates • Sep 22, 2006 • MarketPlace.org: http://marketplace.publicradio.org/display/web/2006/09/22/checking_interest/
An Introduction to Money Market Accounts • GetRichSlowly.org: http://www.getrichslowly.org/blog/2009/07/07/an-introduction-to-money-market-accounts/
