Money Market Accounts Pros and Cons
What are the various Money Market Accounts pros and cons? Money Market Accounts offer multiple benefits to its account holders ranging from higher interest rates to being backed by the Federal Deposit Insurance Company (FDIC) or the National Credit Union Administration (NCUA) as the case may be. While the combination of possibilities they offer seem perfect, they still have disadvantages. These disadvantages range from higher minimum range requirements from financial institutions to its range of limitations and restriction that could inconvenience account holders. All these put together make up the various money market accounts pros and cons.
An Overview of Money Market Accounts Pros and Cons
Do you want to invest your money in a Money Market Account and have you wondered what you stand to gain or lose? Do you what to find out some of the Money Market Pros and Cons? This article carefully details this information by providing a list of three (3) Money Market Accounts pros and cons.
What are the Pros of a Money Market Account?
Money Market Account (MMA) offers several advantages and benefits to its account holders. Three pros of a Money Market account include:
1. Higher interest rates: The most important advantage of an MMA is that it pays a higher interest compared to a regular savings account. This is possible because an MMA is usually limited to just six withdrawals in a month. It usually requires a higher minimum balance also. These restrictions make an MMA less liquid vis-a-vis a checking account or a simple savings account. Secondly, because funds from an MMA can be invested in low-risk investments (such as bonds and certificates of deposits) banks tend to offer a higher interest to MMA. A Money Market Account may offer interest rates between 1%-2%.
2. Security: MMA funds from a bank are covered by the Federal Deposit Insurance Company (FDIC) for amounts up to $250,000 per account while those from credit unions are covered by the National Credit Union Administration (NCUA). This implies that in any case of loss if something bad happens to your financial institution, your principal balance is covered.
3. Flexibility and liquidity: Money market account holders can easily access their Money market accounts through ATM, checks, and transfers. Money can be easily transferred or withdrawn immediately or any time, for any reason, by transferring your funds into your checking or regular savings account – even if the interest rate drops without attracting penalties or fees for withdrawing. Lastly, there are no monthly maintenance fees as long as the minimum required balance is met.
As a recap, the pros of a Money Market Account include higher interest rates, security, and flexibility and liquidity.
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What are the Cons of a Money Market Account?
1. Restrictions and limitations: Most Money Market Accounts allow a limited number of transfers and withdrawals through debit cards and checks. Financial institutions, in line with the Federal Reserve limits, allow a maximum of six withdrawals or transfers or debit purchases and three check payments in a month. These limitations potentially pose as inconveniences to customers who may need to make an emergency transaction that will exceed the
2. Higher minimum balance requirements: Many people cannot afford a Money Market Account because financial institutions generally require a minimum deposit to open the account (sometimes up to $1,000 depending on the financial institution), then a minimum balance (sometimes up to $5,000 to $10,000 depending on the financial institution) that should be maintained in the account, which are usually much higher than a regular savings account. If the minimum fee drops below the stipulated amount, a maintenance fee (usually $8-$10) is charged by the financial institution.
3. Lower interest rates compared to CDs: Certificate of deposits operate on a fixed interest rate while the interest of an MMA can fluctuate depending on economic factors. When the interest rate for an MMA rises, it is beneficial, even more than CDs. However, it is never beneficial when it crashes. Events like this would mean that CDs are better because no matter what the economy looks like the interest rate remains the same. For instance, early this year, MMAs were paying interest rates of 1-1.5% while CDs were paying 2.2.5%.
As a recap, the cons of a Money Market Account are restrictions and limitations, higher minimum balance requirements, and lower interest rates compared to CDs.
What do I stand to lose if I open a Money Market Account? Find out now!