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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