Money Rehab with Nicole Lapin - WTF are Money Market Accounts?!

Episode Date: June 14, 2021

Can you think of a LESS specific name than “Money Market Accounts?” We’ll wait…  No, right? That’s what we thought. Today, Nicole breaks down what they are, who should be using them and why; as well as the hidden costs that can come with one of these financial tools. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. So far on Money Rehab, we've been talking a lot about savings.

We talked about savings accounts when we chatted about emergency funds, and then again with Money Rehabber Nina when she came on for her listener intervention. Money Rehabber Aaron wants to get into the nitty gritty of this topic. Here's his question. Hey, Nicole, I've heard you mention money market accounts a few times and I tried to look it up, but I'm finding the descriptions kind of hard to follow. Can you explain what it is and who should use it? Abso-freaking-lutely. So Aaron, you think of a money market account as a type of savings account, but what makes money market accounts cool is that they offer slightly more interest than straight up vanilla savings accounts. Hey, I will take slightly any day when we're talking about percentages of interest on my cash, a.k.a. APY, which stands for annual percent yield, as you remember from our episode on emergency funds.

That's the interest you get when you remember from our episode on emergency funds. That's the interest you get when you put your money to work for you. APR, on the other hand, is what works against you when you are paying interest like on credit cards. So I have seen the difference to be as much as 0.01% interest on a regular old savings account compared to 1.6% actually in a money market account. So it's not nothing in the long run. Historically, MMAs were looked at as vehicles only to the already wealthy because the minimums were as much as $10,000 to get in. But the good news is that's no longer the case. A lot of money market accounts start at $1,000 and some banks even let you open one for $1. So that's no excuse. So if you say, all right, Lapid, I'm sold on MMAs and I want one yesterday, you're going to

want to make a decision on where to open one based on the best interest rate you can get right now, because that shit changes all the time. The first place to look for the rates being offered by different banks and brokerages would be a site like Bankrate.com or RatePro.co. You can also look at Barron's, Investor's, Business Daily, or the Wall Street Journal for a huge comprehensive list of all the current options. Honestly, most of the big reputable FDIC-insured banks and brokerage houses are very similar. The one you pick for your money market account can likely hold some of your other investments too, which might be helpful if the

rates and privileges are strong across their other products, but they don't have to be in the same place. I don't work for any of the following companies, nor am I endorsing them right now, but if you're really stumped on where to start or what the heck a brokerage is, here is a list of some options to get you going. Fidelity, Vanguard, Capital One, Charles Schwab, Barclays, TD Ameritrade, Edward Jones. Those are some of the big usual suspects. I would recommend every money rehabber look into money market accounts, but choosing the right one for you is going to depend on these six factors. Number one, the minimum required to invest. So you want

to ask about that. Number two, if they can set up an automatic investment program where they take money out of your checking account on a regular basis. This can be as low as 50 bucks a month, and if you set this up, oftentimes they will lower the minimum to invest if you have an automatic deposit. So be sure to find out. Number three, whether they are federally insured. This may be noted as FDIC insured for banks or NCUA insured for credit unions. Reminder, we like our financial institutions to be insured. Number four, what check writing and ATM capabilities they have. Even though you're not touching this money very often, it's good to know just in case you have to break the glass, so to speak, and you need some money. Many money market accounts set a threshold of monthly withdrawals before imposing

fees, so you don't want to treat this account like a regular old savings account. You want to make sure you're intentional about taking the money out of this account. Hence, think of it more as an emergency fund. Number five, if there's a big penalty for carrying a low balance. Number six, if there are any other fees, you'll want to read the fine print on this one. For today's tip, you can take straight to the bank. Check out how much money you should be saving for an emergency fund. And reminder, if you don't know how much money you should be putting toward a doomsday fund, you can listen to episode 31 of Money Rehab, conveniently titled for you, How to Make an Emergency Fund. Then cross-reference how much you should be saving with the minimum amount of money required to enroll in money market accounts

you find. If you're finding your goal emergency fund amount is more than the minimum balance required in a particular money market account, then this is your perfect match. Money Rehab is a production of iHeart Media. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hattikadur and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.