I am incredibly excited to feature my 2nd guest blog post at Generation YRA!
Get ready to meet Kait from Keeping Change:
Kait is a twenty-something girl living modestly with her twenty-something guy. She writes a blog called “Keeping Change” where she tracks their financial, professional, and sometimes personal triumphs and disappointments. Her hope is that somehow her candid transparency will help empower other women to take control of their financial health too because, honestly, being in control rocks.
Without further delay, introducing Kait’s guest post on starting a money market savings account!
When it comes to investing, I am a total baby. I am paralyzed by my limited knowledge, I love stability and am risk averse, and I don’t trust anyone else enough to invest my money for me. One of my goals for 2015 is to gain enough investing knowledge and confidence to actually get myself in the game.
To get myself started, I have made a point to read as many words of investing advice from finance professionals as possible. Essentially what I’ve learned is that it’s best to first save up an emergency fund, second invest in retirement funds (401k / IRA), and third invest what money is left over (if any…) in whatever ways I want!
I recently wrote a post about building an “eff you fund” (aka “emergency fund”). Since I already had this money saved (did I mention I love stability?), I wanted to find a place to store it other than my bank’s savings account where I was earning a measly 0.01% in interest! I knew that whatever “investing” vehicle I chose would have to be liquid (easy to withdraw from), very low risk, and have a higher interest rate than I was getting at my bank. I mean, if we’re just going sit on this money in case of emergency, we might as well earn some interest, right? Right.
Enter the money market savings account.
FDIC insured money market savings accounts typically pay higher interest rates than regular savings accounts by requiring a higher minimum balance and more limited withdrawal abilities (the account I use allows up to 6 transactions per month without penalty). These minor restrictions make money market savings accounts a little less liquid than checking accounts or regular savings accounts, but because this account will be used only in case of emergencies, I would never need to withdraw money more than 6 times in a month anyway.
Phew! Now let’s talk numbers…
The account I personally invested in was through GE Capital and promised a 1.05% APY (annual percentage yield). While this might not SEEM like a lot, it’s over 100 times higher than the interest I was receiving from my Wells Fargo savings account!
Allow me to illustrate the beauty of this with some math:
Say you invest $5000 today
* In 6 months you will earn just over of $25 on that investment vs. $0.25 in a regular savings account
* In 1 year you will earn over $50 vs $0.50
* In 2 years you will earn over $100 vs $1 <– a $99 difference in earnings!
Make that a 10k investment and your returns are double!
Crazy. There is an awesome website called “Magnify Money” that I used to choose the best account for my zip code and savings goals. I highly recommend checking it out to learn more if you’re considering opening a money market savings account.
And there you have it! My current emergency fund savings strategy! And for a few disclaimers, please keep in mind that I am not a finance expert and I am not trying to give financial advice. My goal is to simply share my own path to investing with the hope that you learn something new and feel inspired to share your story as well! I don’t have all of the answers but I am happy to discuss any questions or comments you have in the comments section below. Perhaps you can enlighten me and Alyssa with your own expert knowledge! You can also contact me directly if you have more personal questions.
Thanks for your time, everyone – and a special thank you to Alyssa for allowing me to stop by this week and share with you awesome readers!