Money market accounts aren’t as confusing as many think but there are some advantages and disadvantages to these higher interest rate bank accounts. Learn why these types of accounts can be a good and safe investment.
The Pros of Money Market Accounts
Banks, credit unions and financial institutions offer money market accounts and there are definite advantages to opening this type of account including:
Low-Risk Investment Opportunity – For those not willing to gamble on risky investments on their own, a money market account guarantees the safety of your money along with offering a better interest rate than a generic checking or savings account.
Higher Interest Rate – For most who wonder why should I open a money market account, money market rates are considerably higher than what you receive in standard accounts. For example, an interest savings account may offer a low interest rate such as .10% where a money market account may offer an annual percentage yield (APY) around .70% or higher.
Easy Access To Your Money – With a money market account, many fear they won’t have access to their invested dollars which is not true. Withdrawals, writing checks and transferring money from this type of account is one of the reasons they are so attractive.
The Cons of Money Market Accounts
Along with the pros, there are some cons to opening a money market account, although they are easily managed:
Account Limitations – With money market accounts, depending on the institution, there are limits on how many checks you can write a month or how many dollars you can withdrawal or transfer.
Balance Limits – Most standard checking and savings accounts can be opened and maintained with a low balance and few penalties. With money market accounts, you will need to follow the rules of the institution on balance limits to avoid fees and penalties. An example would be a bank that requires you keep a $10,000 minimum balance.
Rates Vary – It’s essential to shop around for the best money market rate before choosing the first one you find. Just because a bank or credit union or other financial institutions claims they offer “high-yield” money market accounts doesn’t mean they offer the highest rate. A con to money market accounts many investors make is not shopping around for the best rate.
The Rewards of the Right Money Market Account
As stated earlier, it’s important to shop around to find the best interest rate before investing into a money market account. Some investors may claim a money market account isn’t as wise as riskier investments because these accounts are “safe” and don’t yield a large rate of return on invested dollars such as investing in stocks or bonds. Still, for those just venturing into the investment world, a money market account is a good way to learn about how funds are invested along with gaining interest on your money.
A division of the SEC, Investor.gov assures those who desire the safer investment risk of a money market account that in 2010, new rules are making them even safer. This is being done by making the funds more “resilient to severe economic stresses such as those seen in the fall of 2008.”
The best way to learn more is to speak to those knowledgeable about money market investment accounts and be sure to shop around for the best rates.