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Columns: Dr. Don
Don Taylor, Ph.D., CFA, CFP Expert: Don Taylor, Ph.D., CFA, CFP
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Money markets are a good place to keep emergency funds
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Where to invest emergency fund

Dear Dr. Don,
We have $10,000 in an emergency savings account at our credit union earning only 1 percent. We are thinking of putting it into a MMMF a MMA savings account. Which is the best way to go or are there other options? We would like to have access without penalty.
-- Patrick Pecuniary

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Dear Patrick,
Either a money market mutual fund, MMMF, or a bank money market account, MMA, is a great place to park your emergency savings. The MMA has limited access, defined as up to six withdrawals or transfers per month, only three of which can be by check, but it could be an FDIC- or NCUSIF-insured deposit, backed by the full faith and credit of the United States government.

The money market mutual fund invests in a pool of money market instruments -- short-term debt securities with a final maturity of a year or less. You can choose between taxable funds and mutual funds that invest in tax-exempt securities. Bankrate tracks the highest yields for MMAs and MMMFs, along with high yield savings accounts and CDs, on its "Compare Rates" Web page.

For a primer on the difference between these two investments, read the earlier Dr. Don column, "MMAs and MMMFs: Know the differences."

Getting your emergency fund to earn more than 1 percent (pretax) is a very smart move. You should be able in today's market to earn over 5 percent on the money while still having the access to the funds that you require.

Bankrate.com's corrections policy -- Posted: June 13, 2007
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