Money market accounts (MMAs) can be a great place to get the most out of the money that you've set aside for a rainy day.Financial institutions offer FDIC-insured MMAs to their clients, just like they offer regular checking or savings accounts. The benefit? MMAs tend to offer higher interest rates than other deposit accounts. Zero risk for your money and a higher rate makes an MMA a much better place to stash your rainy-day cash than a savings account. MMAs carry some conditions and restrictions that vary from institution to institution. In general, however, you are limited to a set number of transactions per month (about six total, including three checks), and must keep a relatively high minimum balance (often $1,000 or more).
Say you live in Michigan, where the average interest rate on savings accounts is 0.673%, according to BankingMyWay.com. If you sock your $24,000 away in a savings account at that rate, you'll earn a paltry $161 in your first year, and $815 after five years. If, on the other hand, you deposit your emergency fund in an MMA earning the state average of 2.014%, you'll earn $482 in your first year and $2,511 after five years.
While the purpose of a rainy-day fund isn't to offer a high-yielding investment, there's no point in missing an opportunity to pad your safety net a little. Choosing an account that offers a higher yield but the same amount of security and convenience just makes financial sense. This becomes especially true as increasing concerns about inflation crowd the headlines. To research up-to-date MMA rates in your area, check out the money market section of the BankingMyWay.com Web site. You can search based on your city or zip code, and find the rates and account details offered by a number of institutions near you.