As a young professional, you’re probably looking for ways to save money, and the prices on new cars can lead to sticker shock. You may not be ready to add car payments to your student loan payments, but even if you live in a city with public transit, you may eventually need a car.
Buying a used car can help you get the transportation you need at a price that fits your budget. However, you’ll still need some money up front for a down payment. Find out how a money market account can help you save for a car.
What’s the difference between a money market account and a savings account?
If you’re already tucking a bit of that hard-earned paycheck away each month, that’s a great savings practice, and you may be wondering why you need a money market account if you have a savings account. Ordinary savings accounts help you meet short-term savings goals, but the amount of interest you can earn on them is relatively low.
Money market accounts are a high-yield savings account, which means they’ll help you earn a lot more. They also have a higher minimum balance to open, so they’re perfect for someone who has been saving for a little while. Compare money market interest rates to those of your current account to calculate the difference and see how fast your savings could add up.
How money market accounts can help you stick to your budget
We all know what can happen; you set aside savings and then start to draw a little bit here and there to cover expenses or non-essentials like impulse purchases. Before you know it, you could be back to square one.
High-yield savings accounts have withdrawal restrictions (three to six times a month) in exchange for the higher money market interest rates. These restrictions help you keep your money in the account until you’re ready to buy that new car. As you deposit money from your paycheck into your money market account each month, you’ll be less tempted to use that money for smaller purchases.
Shop around for the best deal
When you’re ready to make a purchase, take your time and compare deals. Here are some tips to help you know where to start when buying used cars:
- Think about how you will use the car. Will you be commuting 20 minutes every day or traveling longer distances? Do you need room for a car seat?
- Ask for a vehicle history report so you’re aware of the car’s accident and maintenance history.
- Test drive the car before you make any agreement to purchase it.
- Buy in December instead of January as you can sometimes get a better price on that year’s model.
- Purchase from a dealer. Dealers can help you obtain better financing options and warranties you might not receive from an individual.
Start saving and improving your credit score now to help purchase your car later
Your money market account will help you save up for a down payment, but you’re probably still going to need a car loan. Make sure your credit is in order by consistently paying credit cards and other debt on time. This will help your chances of being approved for a loan with a competitive rate.
Whether you decide to buy a fun sports car or more practical mini-van, opening a money market account now can help you save for a car when the time comes.
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