Everything I throw into my brokerage account and don't invest automatically buys money market (shares?) I've been keeping my emergency fund in a savings account. Should I do this, when I presumably get more from the money market investment, and it's highly liquid?
In the United States, savings accounts are insured by the FDIC. If the bank fails, your money will still be safe.
Money market accounts are not FDIC insured. Further, while generally safe investments, they may still lose money in extraordinary circumstances. This happened most recently with the failure of Lehman Brothers in 2008.
You have to decide how to handle the 6 month emergency fund.
You have to decide:
- how much risk (most pick extremely low risk);
- Ease of access;
- Separation of funds;
Some decide that the savings account in the same institution as their checking account makes the most sense. Others pick a CD or even a ladder of CDs. Others pick 4 week treasury bills. Others money market funds. Some make sure that it is in a bank in another state with no-electronic access. Others want to know what stocks they should by so that they can maximize the growth of the emergency funds.
Whatever allows you to put aside, segregate, and protect the funds to whatever levels make you comfortable.
So if the money market account works for you. Great.
People still have savings accounts for other reasons. They keep it for their life happens funds, they use it as a buffer for their checking account, they use it to save money for gifts, or a vacation.
It depends on how much money you are talking about. For a few hundred dollars, it's pointless. For 5 figures or more, it's worth the effort.
In the US, you can get as much as 2.05% in a money market account. Some offer free checking and you can transfer money in 3 days or less, depending on the money market.
With credit cards, MM checks and online bill pay, I keep a max of maybe $1,500 in a local bank and when it runs down, I replenish it with a quick online transfer. Keeping large sums of cash in a low to no interest account is throwing money away. And despite the meager 2%, it galls me to allow local banks nearly free use of my cash.
If a couple of hundred dollars of extra cash is a cheap meal to you, make the effort anyway and give it to a deserving charity.
Should I do this, when I presumably get more from the money market investment, and it's highly liquid?
Savings accounts are just as liquid as MM accounts, and can pay a better rate. For example, at Fidelity, the YTD (daily) yield on SPAXX (Government Money Market Fund) is 0.68% less the 0.42% expense ratio, yielding you 0.24%. OTOH, Ally Bank yields 1.75% on it's FDIC-protected online savings account. Other just-as-safe online banks offer similar rates.
Of course, many -- typically brick and mortar -- banks only pay 0.01% on savings accounts. I'd not recommend them to anyone, because of the existence of online banks.