Saving for a rainy day... (Part III - Short-term savings)

In parts I and II of my Saving for a rainy day series we looked at long and medium term saving options. Now the question comes up what are you going to do with all that leftover money that isn't going into your retirement fund and your medium term savings account. Well, presumably you want to keep it liquid (accessible), but you also want it to be making some interest. The good news is you can do achieve both of these goals pretty easily. My two pieces of advice would be to put your short term savings in a money market account or a high-yield savings account.

The biggest difference between these two options is how safe your money is. A savings account is typically a deposit account that is offered by a bank and is insured by the FDIC (Federal Deposit Insurance Corporation). This means that even if your bank fails, your money is safe... well up to a limit, if you have more than $100,000 in FDIC insured accounts, you may need some additional coverage and you should definitely stop taking financial advice from me. A savings account does have some access restrictions, but for the most part, you can easily get to your money if you need it.

A money market deposit account is typically not FDIC insured. However, this does not make it unsafe, just slightly less safe than a typical savings account. The money market is a trading market in which banks offer relatively safe short term loans to other banks. They make these loans with money provided by their clients. The nice thing about a money market account is that it gets excellent interest rates considering how easy it is to access to your money (you may have a limit of how many withdrawals or how many checks you can write in a month). Most money market accounts offer their users a debit card and a checkbook. These two tools are typically not offered to savings account customers, but whether you need them depends on how you save money.

I have both a high yield savings account and a money market account. You might even be able to open both of these type of account through your current bank. However, if you are looking for a place to put some money, or start saving some money, here are some suggestions:

High Yield Saving Accounts:

• Washington Mutual Special Savings Account
• 5% APY (Annual Percentage Yield)
• You must sign up online
• The sign up process is very quick and easy but you are required to open a checking account at the same time. There is no minimum balance in the checking account and a $1 minimum in the savings account.
• This is the account I have because it was easy to link the new accounts to my existing checking account with WaMu.

• E-Loan Savings

• 5.25% APY
• You must sign up online
• $5,000 minimum initial deposit, $500 minimum balance to keep account open
• Great account if you have a lot of money you want to sock away for the short term.

Money Market Accounts:

• AmTrust Bank

• 5.36 APY
• You must sign up online
• $1,000 minimum initial deposit, $1 minimum to earn interest
• FDIC Insured

• Check out this great tool from interest.com to find additional money market accounts with great rates of return.There are many other methods to save your money. But hopefully this series of posts has provided you with some new information that will entice you to go out there and find out more about how you can make your money work for you.