Where do you keep the money you set aside for annual or semi-annual payments or for times when you need extra cash quickly? You don't want to take money out of any of your savings or investment accounts because you might have to pay a fee or it might not be in your best interest at that time.
Most people just keep their money in their checking accounts, where it doesn't earn much or anything at all. Some people don't put money away for emergencies. Instead, they just hope for the best or rely on luck.
"Luck never seems to help the person who needs it."
-Unknown
Here is another one. Do you put anything aside in case you need to pay an insurance deductible?
A money market account is a good place to put money for payments that don't come up very often or for possible emergencies. Interest rates are usually higher than savings account rates, and the money is easier to get to. Some banks' Internet money market accounts have even higher interest rates. Check the rates on the different types of accounts at your bank to see which one is best. Comparing banks is a good idea. It can be very different. The minimum balance for a money market account is higher, but the amount you'll need to keep in it will more than cover that.
Even though you can only write a certain number of checks on a money market account in a certain amount of time, this is usually more than enough for most people.
When you make your budget, you'll need to put money into this account until the balance is enough to cover your home and car payments for a year or two, as well as your home, car, medical, and dental insurance deductibles. Once this account is full, the interest you earn will be able to lower your monthly budget payments that were used to pay for insurance or emergencies.
With this account, you'll be able to choose the highest possible deductible, which will lower your monthly insurance payment. If you pay your car insurance every three months or twice a year, you can now pay it all at once and save on service fees.
Money market accounts may not earn as much as a mutual fund or other types of investments, but they do earn more than most savings accounts and checking accounts. Money market accounts are good because you can get to your money quickly when you need it.
With a little self-discipline, you can give yourself good financial security by putting your money to work for you in more than one way.
