My Money Market

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So today I decided to take a look at my Money Market account, which I usually try to check only once a month, and saw that the interest rate went from 5.30% to 4.90%. I was surprised that my initial reaction wasn’t disappointment but rather quite passive. There was a point in time where I used to think that every one hundredth of a percent counted and mattered and that I would find the best money market account accordingly. But the truth is, unless you have a nice amount of money, say a million dollars, it really doesn’t matter too much.

I think people who are new to finance and just started saving have this same problem just as I did. People are always looking to get the highest percentage rate on their interest, but the thing is, the percentage rate really doesn’t matter unless you’re dealing with substantial amount of money. Instead of concentrating on trying to find an account that offers a percent higher than the current one you’re considering, you should put that energy into concentrating on how to stay saving for more than 3 months. Most Americans fall short on their savings goals, I don’t have a percentage rate to offer you but I’m sure its quite high. The personal savings rate in the United States is a negative number, but majority of Americans think of themselves as people who “always look for ways to save money“.

So back to the money market account, lets do a quick example to demonstrate what I’m talking about.

For the sake of my story, lets use my interest rate(in case you were wondering, my account is with Gmacbank) at 4.90%, which used to be at 5.30%. We’ll say account 1 has $5,000 and account 2 has $500,000. Lets crunch some numbers.

Account 1($5,000):
In one year, at 4.90%, this would make $245/year ($20.42/month).
Now at 5.30%, we get $265/year ($22.08/month).
So not a huge difference eh? Just 20 more bucks a year or $1.66 a month. I somehow doubt I’ll even notice this small difference. Now account 2 on the other hand…

Account 2($500,000):
In one year with 4.90%, this account would make $24,500/year ($2,041.66/month).
At 5.30%, this account would be $26,500/year ($2,208.33/month).
Now in this case, the difference is quite notable. This account dropping by as little as .4% makes a difference of $2,000/year and $166.67. If I was in this case, my reaction most probably would have been quite different than that of today.

The point I’m trying to make is don’t worry about the percentages now and focus more on getting our accounts to $500,000. Lets continue saving and worry about the minor details later. Chances are, you don’t have $500,000 so percentage rate is not going to help you become rich, well at least not now. The idea of saving on the other hand is a complete different story.

Quick note: If you are looking for a place to put your money into for savings and also concerned with not having to worry about commitment, then you should really consider looking into getting a money market account. I strongly suggest going with Gmacbank. I’m not saying this because they’re paying me or anything like that but just from my personal experience, they really have it well together. They are really helpful each time I call and all my calls end with the feeling of satisfaction. For more information, you can go here.

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  1. has that 4.9% been hit by the recent federal rate change? I know ING, HSBC, and many others have already dropped. I have a decent amount of cash in savings with balance arbitrage, so a few % points can make a difference.

  2. and the rate is still going down.

  3. Good post. Keep in mind however that small differences in interest rates can make a huge difference in the long term because of compounding. However, there are some things that you can control and others you cannot, and the interest rate you are getting can be one of those. Yes there will always be more interest to be had, but there is not much we personally can do to stop rates from falling.

  4. Yeah, I’m not sure how some people keep up the rate chasing. I guess it makes sense if you have hundreds of thousands of dollars, but chasing rates I find rather tiring to squeeze out maybe 10 bucks a month. I don’t like constantly shifting my money around.

  5. I liked the photo on the post.
    Nice way to show the 80-20. Is that cake or icecream?

    -Neo

  6. The disturbing thing about money market is that usually when interest rates are higher, then equity markets also reaches the bottom (that means has higher yield..)

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