What is the Advantage of a Money Market Account?

There are several advantages to having a money market account. it is a safe investment that provides maximum liquidity. Investors have easy access to their money. They can deposit and withdraw large amounts without penalty. The interest rate tends to be better than bank savings accounts. Money market accounts are among the mostly widely held types of investments.

Benefits

The primary benefit of a money market account is that there is virtually no risk to principle. Money market accounts invest in short term debt obligations like treasury bills, certificates of deposits and commercial paper. Most only deal with highly rated companies and government agencies. There is virtually no chance that these investments can lose money. The only risk is that the interest rate will drop below the rate of inflation. If this happens, your money is effectively losing buying power. In the unlikely event that the company holding your money market account goes bankrupt, you might not get your investment back since money market accounts are usually not FDIC insured.

Function

Another advantage of a money market account is that it is extremely liquid. Money market accounts are open ended investments. This means that Investors can add and withdraw funds at any time without penalty. There are few limits on these transactions. One requirement is that a minimum balance must be maintained. This is usually equal to the minimum initial deposit of between $1000 and $5000 dollars depending on the account. Withdraws from a money market account with a check sometimes have minimum amount requirements.

Potential

An advantage of a money market account is that it earns higher interest than other low risk investments. Interest bearing checking accounts and savings accounts at banks can pay as little as two percent or less. Money market accounts pay an average of two to five percent per year. This is a rather modest rate of return compared to the long term potential of stocks and bonds, but it is pretty good considering the low risk and high liquidity of a money market account.

Features

An advantage of a money market account is that it acts as a holding place for money that is not tied up in other investments. Every investor needs a portion of their assets in cash. This helps them pay day to day expenses, acts as a cushion for emergencies and is available to buy other investments. Proceeds from the sale of stocks, bonds and mutual funds are commonly dumped into money market accounts while the owner decides what to do with it. Interest and dividends from other investments can be transferred automatically to money market accounts so they can be spent as income.

Types

An advantage of a money market account is that it is one of the most widely owned types of investment. As a result, there is intense competition for investors. Different money market accounts invest differently and therefore have different interest rates. Investors willing to shop around can get good deals. Every money market account reports its past earnings. This can give an investor an indication of what they might expect in the future. However, past performance is not an guarantee of future results. Money market account interest rates change frequently. It is up to the investor to remain aware of the changes.