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    5 Replies Latest reply on Aug 11, 2008 10:11 PM by wealthoffice

    Money Market or Savings Account

    Consultant442 Newbie
      As I earn money with my small business, I want to make sure I'm saving as much as possible. With that, I also want to make sure I'm getting the most out of earning money on the money I'm saving. I am a sole prop. independent contractor.

      I'm currently saving my extra cash in a savings account. I heard savings accounts (1099-INT) get taxed more (at your personal tax bracket) than money market accounts (capital gains tax of only 15%).
      1. Is that true?
      2. What are the tax rates for each account?
      3. If that is true, if I can earn the same interest in a money market as a savings account, should I be saving in a money market instead of a savings account? What are the pros and cons of each account?
      4. Is there a better way to be investing my savings? I plan to keep some funds liquid, but the rest, I would like to earn as much interest as possible while still being relatively conservative with my investments. I'm okay if I can't touch some of the money for a year or two.

      Please advise. Looking for the best way to invest. Thank you!
        • Re: Money Market or Savings Account
          LUCKIEST Guide

          Money Market Savings

          A Money Market savings account offers a higher
          interest rate than a regular savings account, plus the liquidity,
          flexibility and accessibility of a checking account.


          I'm currently saving my extra cash in a savings account. GREAT

          I heard savings accounts (1099-INT) get taxed more (at your personal
          tax bracket) than money market accounts (capital gains tax of only 15%).
          I DO NOT THINK THAT IS TRUE.
          Ask your Accountant. LUCKIEST
          • Re: Money Market or Savings Account
            tatiana83003 Wayfarer
            You actually have a lot of options. A savings account is usually for lower balances. A money market will always earn more interest that your average savings. Because you are a Sole prop. you can also open up an IRA account which can be tax-deffered, especially since your self employed and do not qualify for a 401k. There are also CD accounts for business that will earn you the highest interest, but your money stays locked up depeding on what term you choose to go with.
              • Re: Money Market or Savings Account
                wealthoffice Newbie
                A savings account typically pays a lower rate than a money market, and you should never have more that 100,000 at a bank including pending interest.

                Also, a money market is a simplified mutual fund and can lose money; most don't because they add money to insure the $1.00 NAV value. If you choose a money market make sure it is with a larger fund, and spread it around if you have more than $250,000.

                If you are in a higher tax bracket then consider a state tax free money market--it pays a lower rate but after considering your state and federal bracket it often beats the taxable rate.

                Good luck.

                Also, someone posted that because your are self employed you can not have a 401k, thats not true. Recent tax law changes allow for 401k plans made especially for small family owned businesses.

                Aaron