Grow Up Rich

Wednesday, May 17, 2006

Advice About Money Market Accounts

Today's column is designed to help you pick the right Money Market Account to help you start saving!

In the last post we talked about the questions that you should ask about an account before choosing one, they were:

1. What is the interest rate?
2. Is there a minimum deposit to open?
3. Is it FDIC insured?

To keep things simple today, all of the money markets we will be discussing have a $1 minimum deposit and all of the banks are FDIC insured. So today all we need to discuss are the savings rates and the pros and cons of each account.

HSBC Direct currently has a money market available that is paying 4.5% APR*. This is an incredibly competitive rate in today's market. HSBC is a large bank, with more than $300 Billion in assets* today, so you are trusting your money to a large and stable firm.

The Pros - HSBC offers several good benefits such as: deposits can be made at any HSBC ATMs and the fact that if you do your regular banking at HSBC the online account can be linked to your other accounts. Additionally there are no fees for the online money market.

The Cons - HSBC is newer than some other vendors for online accounts and has not always been a leader when it comes to high interest rates. This means that they may only offer that high rate for a limited time and you would need to keep an eye on things to make sure you were getting the best deal.

The online interface is also a little glitchy and not the easiest to use if you aren't good with technology. Also, while deposits into ATMs are very convenient, HSBC only has ATMs in a dozen or so states, so if this is a big plus for you, make sure you check to see if they're in your home state today.

ING Direct
ING Direct is currently offering a money market that pays 4.15% interest. This rate is not the highest in the marketplace, but it is definitely still among the best out there. ING was a pioneer in the online banking industry so they do not need to offer the highest rates as they already have many customers. ING is also the largest company of the banks we're discussing today with hundreds of billions under management and is a very stable choice.

The Pros- ING is always in the top tier of interest rates, so while they may not always be the highest you do not need to watch and ensure that it isn't a promotional rate that goes away.

ING also offers a $25 bonus for opening an account if you have a referral code. When you refer someone to ING who opens an account you will also get an additional $10, up to $250 a year. If you are thinking of opening an ING account and do not have a friend or family member who has one (because then they'd get the $10 bonus) feel free to email me and I'll send you a code so you can get the $25 bonus.

ING also frequently runs special offers where new money deposited earns even more interest for a set amount of time (recently new deposits during the winter months earned 4.75%, the highest of the large banks). These bonus offers come automatically and are a great way to earn even more!

Finally on the pro side, ING has a great site for kids (called orange kids) that has lots of great information about learning how money works early. If you are young yourself, or are investing with your children to help teach them, ING is a great option.

The Cons - Sometimes the ING site is a bit slow, which can be frustrating if you have a busy schedule, but the interface is very easy to use. ING also does not currently offer ATM deposits and requires a checking account (which can be at your current bank) to transfer your deposits from.

Emigrant Direct
Emigrant direct is currently offering money market accounts at 4.5% interest. This is a great rate, but the bank is the smallest that we're discussing today with slightly less than $11Billion under management.

The Pros- A great rate...And Emigrant seems to be making a strong push to consistently be the rate leader in the marketplace. Each times rates go up with competitors, Emigrant is very quick to match.

The interface on this site is also quite easy to use.

The Cons- Emigrant doesn't offer many additional products (like CDs, Mortgages, etc.) like some of the others, so you would most likely just use this bank for your money market. Like ING it requires a checking account to shuttle money back and forth.

The Best Bet
Even though it has the lower interest rate I would suggest opening your first account with INGdirect. Why? Because the interface is easy and you get $25 dollars free to begin. With only a .35% interest rate difference between ING and the others we've discussed you'd need to start out with more than $7,000 in the account to earn more than that extra $25 in the first year. Besides, the referral bonuses at $10 give you even more opportunity.

If you do have more than $7,000 that you're looking to invest today I would recommend putting a small amount in ING (maybe $500) and the rest in one of the other choices. This way you would get the best of both worlds (the free money and the high interest rate). If your situation is more complex than that, feel free to send in an email and get some personal advice. Together we'll get you on the path to becoming rich.

Most of our questions via email so far are about how to start saving, meaning where to actually get the money when so many of us feel like we don't have enough. The next few columns will be all about ways to sock away cash without changing your lifestyle or giving up things that you'll miss. Please keep sending in your questions and comments so we can get the information you need to become rich out to you!

Until next time...


APR - Stands for Annual Percentage Rate, this is the number that represents how much interest you would make on your money. A 4.5%APR would pay you 4.5% on your money each year, so if you had $100 invested you would make $4.50 in interest in year 1.

Assets - An asset is something you own worth money, like cash, property, stock or a business. Anything with a positive cash value counts as an asset.


  • THe following questino came in via email, but with permission from the writer I've pasted below for any of you with similar thoughts:

    Kevin asked:

    I was reading your post about money markets and the comparison between the online banks HSBC, ING, and Emigrant. I was thinking for the last few weeks/months about starting an account like this, but I don't have a firm
    grasp on how money gets transferred in to these accounts and the fees involved.

    When you link up your bank accounts to one of these savings banks, do you end up paying fees to each bank for 'wire transfers' or am I mistaken?

    Thank you for your time.

    Kevin that's actually a really good question, because on their sites these
    banks don't do a very good job of explaining if there's any fee structure.

    When you link one of these online banks to your checking account it isn't a wire transfer, it's an electronic transfer. Also, the transfer isn't actually initiated by your bank account it's initiated by the vendor (in
    this case the online bank). Becuase of those two facts there is never any charge for moving money between accounts regardless of how many times you might do it.

    Let me know if that was enough of an answer for you of if you want even more details.



    By Blogger Hunter, at 10:28 AM  

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