A money market account is a great place to park emergency funds or hold money for payments that are made only periodically—and they often offer a higher interest rate than other accounts. Unfortunately, there are also certain disadvantages to parking your money in a money market account.
Restricted transactions per month is one of the downfalls to a money market account. Typically transactions are restricted to 3 deposits and 3 withdrawals per month.
Potential Loss of Investment
If the bank you place your money market account in closes, you could lose all or a portion of your investment because this money is incorporated into the assets of the bank and not protected if they close.
Additionally, money market accounts are only insured by the FDIC for up to the legal limit of $250,000. Do not confuse these with money market mutual funds which are not insured by the FDIC.
Interest Rate Fluctuation
Another disadvantage of a money market account is the possibility of the interest rate fluctuating according to the market since it is not guaranteed.
Having easy access to a money market account can be a potential disadvantage. For those trying to save money, being able to access this money easily makes it available for spontaneous spending.
Minimum Balance Requirements
Most banks also require a minimum balance in a money market account that can range from $500 to $2,500 or more, depending upon the financial institution. The potential for withdrawing below the minimum balance is increased if this account is linked to a checking account as overdraft protection.