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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?

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    Let me ask you a stupid question: Will it make a difference? 6 months emergency funds is not exactly THAT much money and the difference in interest is likely less than a cheap meal a year. I prefer to separate funds. – TomTom Jul 20 '18 at 10:00
  • It depends what the interest rate is on your savings account, really. Online banks are offering 1.75% - 2% for savings accounts. If your savings account is with one of the big brick & mortar banks, you might only be getting .05% or less. – BobbyScon Jul 20 '18 at 13:19
  • Prior to the late 1990’s it was an effort to open a brokerage account. Banks on the other hand were everywhere and it was easy to open a savings account. Which is why they still exist – Alen Jul 20 '18 at 13:42
  • Regarding risk (and assuming you are in the US), you might want to keep your emergency fund in an FDIC-insured account. The savings account probably is insured; is the money market? – chepner Jul 20 '18 at 15:19
  • @Alen: There's also the "if it ain't broke" principle. For a good many people, their savings/checking account probably predates easy access to online accounts, and in some cases on-line anything. I still use the accounts I opened with the company credit union during my undergraduate internship, for instance, because there's never been a good reason to change. – jamesqf Jul 21 '18 at 16:42
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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.

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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;
- Liquidity.

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.

  • Many people use 2 or more of the options mentioned here, for example I have some of my emergency fund in a savings account and some in laddered CD's (ie I buy a 5-year CD every 4-months) – Hart CO Jul 20 '18 at 15:01
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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.

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    The difference between that 2.05% MM, and FDIC-insured savings accounts available nationwide ranging from 1.85-2.05% APY, even on the upper end of 5 figures ($99,999), is less than your "couple of hundred dollars". But I can't find any answer to the question in your "answer" – Ben Voigt Jul 21 '18 at 19:16
  • @Ben Voigt - I guess that you didn't look very far. Bankrate.com indicates that the national average for savings accounts is .09% and .18% for money market accounts and many of the nation's biggest banks pay rates as low as 0.01%. 2.05% - .01% times $99,999 is how much? – Bob Baerker Jul 21 '18 at 20:20
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    The standard in your answer is stated as "can get as much as". It makes no sense to compare the highest rate vs an average rate. It would make just as much sense to compare the Mango 6% to that money market average of 0.18%. And I still don't see any answer to the question (when would a savings account be preferred over money market). – Ben Voigt Jul 21 '18 at 22:22
  • I'm not sure what so hard to comprehend in this. Many brokers pay little to no interest on cash balances. The same holds true for many banks. The more you do, the more cheap free meals you'll earn. U.S. MM accounts have limits on the number of transactions per month. You can't make frequent withdrawals from them for daily expenses. They can be used for automatic payment of regular bills. So keep as much in the money market as possible without inconveniencing access. – Bob Baerker Jul 22 '18 at 14:46
  • It's not "hard to comprehend", it's just that "choose a bank/broker wisely because they don't all pay the same" is completely orthogonal to the question that was asked. Your answer compares interest on a good MM account to that other MM account, not this MM account to an equally ranked savings account. – Ben Voigt Jul 22 '18 at 14:50
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Should I do this, when I presumably get more from the money market investment, and it's highly liquid?

Yes.

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.

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