Life is always easier when you can keep things very simple. So you should know right away that opening multiple bank money market accounts is not going to be the simple answer to your savings program, but it may be the profitable answer. Why would you want to open more than one money market account? Let's take a look at an example. Today's highest money market rates include:
Corus Bank 2.18%
Intervest National Bank 2.00% APY
GMAC Bank 1.90% APY
Bank of Internet 1.70% APY
So let's say so you have $40,000 to place in money market accounts. The plan is to find the highest rate, in this case Corus Bank, and then deposit the full $40,000 in a new online account there, correct? Not so fast, here are some reasons to open up four accounts at four different banks:
1. Rate Switching - In our example above we observe that today Corus Bank has the highest rate. However, we don't know what the rates will be tomorrow, next week, or next month. If we have all four bank money markets accounts opened we can easily switch funds to the highest yielding money market account as the rates change. You don't have to distribute your funds proportionally, so if GMAC Bank increased their rate to 3.00% you can switch $30,000 to GMAC Bank's money market accounts and keep the account minimums at the other three banks. In the long run, rate swtiching should be profitable.
2. Customer Service and Fees - Opening up an account online is quick and easy, but you can never be sure about the level of customer service you will receive on your account from the bank. If you split up your deposit amongst four different banks, you have the ability to switch funds out of the bank that may be giving you customer service problems. Another variable with banks is the fees that they charge. The online bank you open a no-fee no-minimum account one day, may change their policies and increase fees the next day. Some banks even change their required balance requirements to earn the highest yield which can catch customers unaware that their rate has changed. Again, if you have multiple account opened you can easily switch your funds out of the bank that has annoyed you with their customer service or higher fees.
3. Online Access - What happens if you need to make an important online payment like a mortgage bill or credit card bill, but your bank's website is down? If you can't switch funds out of your money market account, then you may face late payment charges and even damage your credit rating. Online banks have experienced prolonged outages in the past, so this concern is more than idle chatter. If you have multiple bank money market accounts opened you can rest reasonably assured that you will have access to your funds for emergency payments.
4. FDIC Insurance - What if you win the lottery or inherit a great sum of money? Bank money market accounts are a great idea to keep your money safe and earn a competitive interest rates, but FDIC-insurance only covers your deposit up to $250,000. Furthermore, at the time that this article is published Congress has not yet enacted a law making the insurance increase to $250,000 permanent past December 31, 2009. FDIC-insurance limit concerns can be put to rest by placing deposits in multiple banks up to FDIC-insured maximum.
Take the extra time and effort to open up more than one bank money market account. MoneyRates.com makes it easy to find the best rates and deals. It's not simple, but it is smart.