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Ask the expert: Pros and cons of having money market accounts and checking accounts at the same bank

December 02, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I have both a money market account and a checking account, and I am in the market for a new bank because mine recently started charging a monthly fee on the checking account. Besides convenience, is there any benefit to moving both accounts to the same bank, or given the troubles banks have had over the past few years, would I be better spreading my money around to a couple different banks?

A: When it comes to keeping different accounts at one bank or splitting them up between two or more institutions, a great deal depends on how much money you have in the accounts. However, a recent rule change works in favor of customers keeping checking accounts at the same institution as their savings accounts or money market accounts.

Ordinarily, the FDIC insurance coverage limit of $250,000 applies to all the deposits a customer has at a given bank. Therefore, if your money market account and checking account exceeded this amount in total, then normally you'd be wise to split those accounts between two or more banks.

However, a rule change in conjunction with the Dodd-Frank banking legislation passed earlier this year temporarily removes the insurance limit on noninterest-bearing deposits, including traditional checking accounts. This unlimited insurance ceiling will apply from December 31, 2010 to December 31, 2012.

This means that even if your money market account is near the $250,000 limit, for the next two years you'll be able to safely keep your checking account at the same bank. In the process, having a larger combined balance might qualify you for special benefits, such as higher money market rates.

Just take note of the fact that this unlimited insurance only applies if your checking account pays no interest, and insurance coverage on noninterest-bearing accounts is scheduled to revert back to the old rules on December 12, 2012.

Got a financial question about savings, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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