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How do I pick the right type of account?

June 27, 2012

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

money market accounts

Q: I have $25,000 that I need to put into an account, but I'd like to be able to put my hands on it if needed. What do I do?

A: There are three important considerations in choosing a bank account that will give you both stability and ready access to your money:

  1. In theory, money market accounts have an edge. On average, money market accounts offer better interest rates than savings accounts or short-term CDs. According to FDIC figures as of mid-June, money market rates averaged 0.13 percent nationally, compared with 0.09 percent for savings account rates, and 0.08 percent for 1-month CD rates. These numbers are subject to change from week-to-week, but over time they've typically fallen into a similar pattern, with money market accounts offering a little more interest than savings accounts and short-term CDs -- on average.
  2. Shopping around is vital. The national averages referenced above are useful for providing an overview on the bank rate scene in general, but they are by no means indicative of the rates you need to accept. Rates at different banks vary greatly. In the most recent America's Best Rates survey, the top money market and savings account rates were several times the national averages. In other words, you can do much better than average by using Internet resources such as MoneyRates.com to shop around. Also, the top savings account rates are often very competitive with the top money market rates, so while money market rates may be higher on average, you should still include both savings and money market accounts in your search.
  3. Under some circumstances, a CD might fit your needs. In theory, your desire for immediate access to your money would seem to eliminate the possibility of considering a certificate of deposit, but there are some circumstances under which a CD might be a good fit. One issue is probability -- if you are likely to need quick access to your money, then by all means stick with a savings or money market account. On the other hand, if a pressing need for that access is only a remote possibility, you may be willing to take a chance with a longer-term CD. Another key issue is the early withdrawal penalty. If you can find a longer-term CD with a very mild early withdrawal penalty, the additional interest you could earn may make the possibility of paying that penalty worthwhile.

Interest rates on deposit accounts may not be anything to get excited about these days, but with all the risk in the financial markets, just obtaining the security of FDIC insurance can make savings accounts, money market accounts or CDs an attractive proposition.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to its "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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