Keeping cash hidden in a home is not exactly the best financial advice to follow. Deposits should be safely put away in an account with an established and reliable financial institution. Deposits are insured, which protects the principle amounts from suffering any losses. Interests rates do go up and down, but this is to be expected. Even a low amount of interest helps grow a net worth.
There are three very basic accounts in which money can be placed: a savings account, a checking account, and a money market account. The process of putting money into any of these types of accounts is easy. The interest rates, however, are going to vary. The intended purpose of each account is a bit different as well. Knowing the differences between the accounts makes it easier for someone to select the right account for a particular amount of money.
Checking accounts, as the name implies, is for writing checks and making other withdrawals. VISA debit cards are usually connected to checking accounts and not savings accounts. The assumption here is most people use checking accounts for frequent withdrawals and payments. In all honesty, it does not make much sense to place a lot of money into a checking account that is not intended to be used. The interest rates on checking accounts are usually quite low. Depending upon the type of checking account, fees are involved. The convenience of being able to pay quickly comes with its costs.
For bill paying and quick withdrawals, a checking account makes sense. Of course, a standard debit card is connected to a checking and savings account but the checking account should not be used to “park” money for the long term. The financial benefits of doing so are nonexistent.
Savings accounts are designed for people to deposit their money in an account that does not come with administrative fees or other costs. A savings account also pays interest. The amount of interest is going to be more than a checking account, but the amount of the interest is going to be much lower than various other investment vehicles such as bonds, certificates of deposits (CDs), and the like. Ultimately, a savings account is a safe place to put money. How much money someone puts into a savings account is up to the individual.
Money Market Account
Money market accounts are somewhat confusing to people because these accounts act as both checking and savings accounts. Money can be put into a money market account for the long term. The accounts do pay interest. Checks can be written to withdraw funds from the account, but the number of checks may be limited to a set amount per month. Debit cards are frequently issued for money market accounts. What makes them different from checking and savings accounts? The interest on a money market account is not fixed. Instead, the interest rate is based on the landscape of the money markets. The fluctuating interest may lead to a better rate than what a savings account offers, but interest rates may dip and be lower than a savings account’s rate.
Each of the three accounts serves a specific purpose. Distributing funds into the accounts should be based on a careful consideration of needs and purpose.