Positives & Negatives of Money Market Accounts

Personal bankers can help you compare money market account options.

Personal bankers can help you compare money market account options.

A money market account is a liquid investment option that typically offers more long-term benefits than simple savings accounts. Money market accounts have some glaring positive and negative features relative to basic savings and other investment accounts. The amount of money you have to invest and your objectives dictate whether a money market account is a good fit for you.

Higher Interest

A main reason to put your money into a money market account as opposed to simple savings is a higher interest yield. Basic savings accounts usually have miniscule yields. Some are as low as 0.1 percent. With a money market account, the more you keep in the account, the higher your usual yield. Interest rates vary significantly between banks and accounts, but a normal yield is between 1 and 2 percent. This makes a money market a savvy option if you have money to put away that you won't need to immediately access.

FDIC Protection

Money market accounts through banks are usually insured by the Federal Deposit Insurance Corp., or if the account is through a credit union, the National Credit Union Administration.. This insurance means your principal account balance is covered against loss up to $250,000. In a January 2010 Bankrate.com article, "SEC: New rules for money market funds," Laura Bruce noted the insured amount drops to $100,000 Jan. 1, 2014. Some money market accounts are excluded from protection, so make certain your bank discloses this critical protection. This makes money market accounts a safe place to preserve and grow your savings.

Higher Minimum Balance Requirements

Money market accounts have a couple significant, negative trade-offs for their higher return. You often need to maintain a higher minimum balance in the account. Many accounts require a $1,000 minimum balance.The higher value accounts do pay bigger yields, but you are penalized if your average balance falls below the minimum level.

Withdrawal Restrictions

Because money market accounts are federally insured, government regulations limit the number of withdrawals you can make each month or statement cycle. These limits force you to treat the accounts as true savings. Federal maximums are six total withdrawals in a given period and only three check payments, according to the Land of Lincoln Credit Union. As with balance requirements, these negatives of money market accounts exist to make you use them for the intended purpose of consistent, long-term savings.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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