Money. It’s a thing that we all have, that we’d mostly like to have more of, and that we have to make so many important and difficult decisions about during the course of our lives. For some people who have managed to accumulate a certain amount of the green stuff, right now there seems no better investment than certificates of deposit (CDs).
However, depending on your personal situation and who you are as a saver, they might not be the best idea. Some savers will do a lot better with a money market account than with a CD.
Here’s why money market accounts might be better for some savers.
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1. Money market accounts allow life to happen
CD interest rates are currently similar enough to rates on money market accounts that it can be a real toss-up about which makes the most sense for you. But perhaps the most important feature of a money market account (MMA) to a savings goblin like myself is that no matter what happens, you can access your money in an MMA.
I am the world’s worst at enthusiastically throwing money into a savings account, only to realize that I forgot that we need to eat food or pay the water bill during a slow month, and then have to pull it back out. Or I conveniently forget that my dogs have their yearly vet visit in April, and the money I’ve been putting in savings has to actually go to the vet at some point in the near future, instead of being locked in an account for six months or a year.
If my goblin savings habits were applied to a CD, I’d be in a world of hurt. I would risk losing all the interest that had accumulated on the money I’ve been saving when I undoubtedly had to close my CD early. With an MMA, you don’t have any of that pressure — if you need your money, you go get your money, and you simply don’t get paid interest on it while it’s out.
2. You get paid interest on what you do have in savings
This builds a bit on the point above, but it’s one I really can’t stress enough. There are two kinds of savers in the world: stoics and goblins. My friend Anna is a stoic. She can save money like you can’t even imagine — it’s all accounted for, it’s all there, it will never leave that account unless she has reached her goal or it’s time to pull it out to reinvest or spend on something big.
Anna is the perfect saver for a CD. She will never fail to get her CD interest in full.
I am a goblin. I have the best of intentions, but my naturally chaotic state means that sometimes, I miss things or I find myself being an aspirational saver. I want to save, but sometimes I just can’t because of life.
For savings goblins like myself, CDs are a trap. We want to save, we plan to save, but there’s always that thing we forgot when doing the calculation and we fall short. We’re only simple goblins, after all.
So, for us, an MMA means we get all the interest we earned because there’s no penalty for withdrawing our money if we miscalculated or life just happened. We can also add money to our MMAs and for the time it’s there, we will get interest on it, too. Even if it doesn’t stay forever. We are free to live our messy goblin lives and save what we can without a penalty.
Money market accounts are great for many savers
The thing with MMAs that you do have to keep in mind is that money market account interest rates fluctuate. But at the moment, they’re trending with CDs, so the benefit of choosing a savings vehicle that fits your lifestyle massively outweighs the small risk of your MMA interest rate dropping significantly.
When you look at how much money you could lose to penalties for early withdrawal of your CD, even a smaller interest rate on an MMA is still often money ahead for savings goblins. But this can be a tricky call, which is why it really makes sense to compare the offerings at your bank. You can have an honest conversation with your banker about how you save and what your savings goals are before you choose one or the other.
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