 Dear
Dr. Don,
There is a lot of advice on the Bankrate Web site and in your column about developing an emergency fund. I am 25 and have been able to save up a little over $2,000. I currently have it in a money market account earning approximately 3.3 percent. This number seems low compared to the other options out there.
My question: On the Bankrate Web site there are a number of high interest online savings account advertisements. Is it likely that these high interest savings accounts will keep pace with money market accounts or are these types of accounts too new to understand how they will evolve? I am debating whether to change my money market account to one with better performance or to transfer it to a high interest savings account.
I appreciate any advice you can offer.
Thanks,
-- Brian Buildup
 Dear
Brian,
A savings account typically has a stickier rate than a money market
account. What I mean by that is, a savings account doesn't react
as quickly to changes in market interest rates. A high-yield savings
account, by its nature, is more competitive than the average passbook
account at your corner bank.
You always have the ability to vote with your feet
if you find that your high-yield
savings account isn't competitive. After all, it's not a CD
with early withdrawal penalties. That said, you should make sure
that you haven't committed to having the money on deposit for a
period of time before you decide to move funds.
While advertisers
love to have you click through
their ads to shop for a new
account, I think you're better
served to first shop rates using
Bankrate's 100
highest yield feature. Sort
by annual percentage yield,
or APY, and see how things shake
out. Many of these financial
institutions allow you to click
through from the rate page,
and for those that don't, it
is easy enough to use your browser's
search feature to find them.
High rates can sometimes mean that a financial institution
is struggling to bring in deposits, so you want to consider the
bank's Safe
& Sound rating, too. An FDIC- or NCUSIF-insured deposit
is backed by the full faith and credit of the United States government,
but if the interest rate is the same, you should go with the higher
rated bank. Bricks and mortar don't make a bank safer; it's how
the bank is managed. That's why the Safe & Sound ratings
are important.
Getting a competitive rate of interest on your emergency
fund money makes it a whole lot more palatable to have this money
invested in a liquid account. You should be able to pick up
an extra 1.5 percent to 2 percent on your account. Keep in mind
that for $2,000, that represents only an additional $30 to $40 per
year, so don't spend a ton of time or energy trying to wring out
the last 0.01 percent in shopping for that account.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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Shopping for a high-yield savings account
