Advantages & Risks of Money Market Accounts
Money market accounts are a special type of account that you can access through a bank. With this type of account, you can deposit money into it and withdraw money from it as you could with a regular bank account. Using this type of account can provide you with some advantages over traditional accounts, but at the same time, it has a few potential drawbacks.
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Earnings
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One of the advantages of taking out a money market account is that you can earn a higher rate of return on your money. Many people use this type of account as a place to park their cash in between larger investments. With this type of account, you can earn a higher rate than you would be able to earn with a regular savings account. Although the difference may not be much, if you have a large balance, it can make a difference.
Insurance
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Another advantage of using a money market deposit account is that it is insured by the Federal Deposit Insurance Corporation, or FDIC. Since banks offer these accounts, they have the same protection as a regular savings or checking account. This means that if the bank goes under, the FDIC can reimburse you for the amount of money that was in your account up to $250,000. This provides you with some peace of mind when it comes to depositing your money in the account.
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Fees and Penalties
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One of the potential disadvantages of using a money market deposit account is that it can come with fees and penalties. Some money market accounts have a minimum balance requirement. If your account balance falls below this amount, you might have to pay a penalty to the bank. Some banks will also charge you other fees like account maintenance fees or fees for bounced checks. These fees can easily eat up any returns that you were able to generate from the account.
Transactions
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Another potential problem of putting your money into a money market account is that you may not be able to use it as frequently as you would like. Most money market accounts have a limited number of transactions that you can engage in every month. If you meet that transaction limit, it means that you will not be able to touch the money until the next month. While you could potentially close out your account and get the money, this can add to the hassle of accessing your money.
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