Lauren Smith, WalletHub Staff Writer
@laurenellesmith
The pros of a money market account are relatively high interests, FDIC or NCUA insurance, principal protection, and liquidity. The cons are minimum balance requirements, transaction limits, lower returns compared to other investments, and inflation risk. It’s imported to weigh the risk versus the rewards to determine if a money market account can help you achieve your financial goals.
Pros and Cons of a Money Market Account
| Pros | Cons |
| High interest rates | Minimum balance requirements |
| FDIC or NCUA insurance | Limited transactions |
| Principal protection | Lower returns |
| Liquidity | Inflation risk |
Pros of a Money Market Account
- High interest rates: Money market accounts generally offer higher interest rates compared to traditional savings accounts. This means your money can grow faster over time.
- FDIC or NCUA insurance: Most money market accounts are backed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), meaning your deposits are safeguarded up to $250,000 if the bank or credit union fails.
- Principal protection: Money market accounts are considered safe because your principal is not at risk, unlike with stocks, bonds or even money market mutual funds. Because money market accounts are savings accounts, they do not have any exposure to market volatility.
- Liquidity: Money market accounts are very accessible. You can typically make withdrawals using checks, debit cards, or electronic transfers.
Cons of a Money Market Account
- Minimum balance requirements: Money market accounts often require a higher average minimum balance compared to regular savings accounts. If your balance stays below the minimum for too long, you may incur fees or receive less interest.
- Limited transactions: While money market accounts do offer some level of liquidity, there are usually limitations on the number of transactions you can make each month. Exceeding these limits may result in penalty fees, or your bank may convert your money market account into a checking account.
- Lower returns compared to other investments: While money market accounts offer higher interest rates compared to regular savings accounts, the returns are generally lower than the potential yield you could earn from other types of investments, such as stocks, bonds, or real estate.
- Inflation risk: Over time, inflation may erode the purchasing power of your money. If the interest rate on the account does not keep up with inflation, the real value of your money will decline.
You can compare the best money market accounts here at WalletHub.
People also ask
What are the dangers of money market accounts?
The dangers of a money market account can include low interest rates, inflation, fees and penalties. However, they are generally perceived as a low-risk investment option. Here’s a breakdown on the potential dangers on a money market account:
- Low Interest Rates: Typically offer lower interest rates in comparison to other investment vehicles such as stocks or bonds. Consequently, the growth of your investment may be slower than it would be with alternative options.
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