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Savings account vs. money market?

I just received a large lump-sum of money. I want to use it for my wedding/honeymoon expenses (still 16 months away) but I'm wondering if it's better to use a savings account or a money market. Not sure I really understand the pros/cons of either.

Apr 24, 2012 by Caroline from Lakeland, FL in  |  Flag
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15 votes

Caroline,

Typically, money market mutual funds or money market savings accounts will pay a slightly higher rate of interest than a standard savings account, so that is an advantage of using a money market mutual fund or money market savings account over a standard savings account.

However, typically, Money Market mutual funds are not FDIC insured. They are considered to be very slightly higher risk than savings accounts, but not by much. On very, very rare occasions during extreme financial crisis (such as 2008), investors in money market funds may see their accounts "fluctuate" a little bit, and the possibility to lose principal does exist. However, this is quite rare.

So, without going into the details of how different money market funds are constructed, personally, I would use a money market from a large, well known firm such as Vanguard or Fidelity to save for something 16 months away.

Good luck and congratulations on your upcoming nuptials!!

Jon Castle http://www.WealthGuards.com

Comment   |  Flag   |  Apr 24, 2012 from Jacksonville, FL

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13 votes

I am with Ryan on this question. If the money does not need to be touched for at least 12 months, I would stick with a bank or credit union CD. If you would need access to the money for deposits on venues, caterers, flowers etc., then a money market would be in order. Money market accounts can give you checks or a debit card in order to use the funds when needed.

Comment   |  Flag   |  Apr 24, 2012 from Lititz, PA

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12 votes
Ryan Level 19

A large lump sum with a 16 month time horizon for a wedding/honeymoon? Congratulations in advance. If this is a very large sum, be careful not to exceed FDIC limits if you go with a savings account. There is a different between a money market mutual fund and an FDIC insured account that should be considered, especially since the interest rate on either choice is virtually zero. An option worth considering would be to use a 1 year CD if you can find a bonus rate but again, those rates will be very very low. With a limited time horizon and defined need for these funds, stick to the bank type accounts. If you decided to go with a non-FDIC money market, look for onese that hold primarily insured underlying investments.

Comment   |  Flag   |  Apr 24, 2012 from Gettysburg, PA

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