6/06/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"What is a money market account?"

Dear Dave,

I’m a second-year nursing student at Vanderbilt University. My husband and I are fairly new to everything you teach. I’ve seen you mention that a good place to keep your emergency fund is in a money market account. Can you tell me anything about these money market accounts?

Julie in Nashville, TN



Dear Julie,

You may see money market accounts called by a lot of different names. The money market is a financial instrument where short-term debts, such as Treasury Bills, are bought and sold. If you get a money market savings account at a bank, that is actually a savings account that pays the same rate as the actual money market. If you get a money market account with a mutual fund company, you’re actually buying into the money market. The only major difference is that mutual fund company accounts are a lot more flexible like check writing privileges and they don’t have FDIC insurance to protect your savings.

I have my emergency fund parked in a money market account with a mutual fund company. It will earn about the equivalent of what a 6-month or 1-year Certificate of Deposit will earn. However, my money market account is liquid and has a little checkbook that comes with it, so I can write a check out of the account if I wish. I don’t do that, but I could if the need arises. You don’t want to use a money market account as a checking account because it would be too cumbersome to keep up with. However, if the transmission drops out of my car on the interstate one day, I can just write a check out of my money market account to pay for a new one if I need to do so.

The money market account is a better place to put your emergency fund than a regular savings account because the money market account pays more interest.

-Dave
 

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