Is a Money Market Account a Good Idea?
Opening a money market account gives you an alternative location to park your capital when it is not in an investment. Putting your money into this type of account can be beneficial depending on your situation. These accounts are safe and they can bring you in some returns on your money.
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Money Market Accounts
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A money market account is a type of account that you can access at a bank or with a brokerage. These types of accounts are liquid because you can access the money in much the same way as you would with a regular checking account. Money market accounts often allow you to make a certain number of transactions per month. You do not have unlimited transactions as is the case with a checking account, but you can move your money around if needed.
Advantages
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Putting money into a money market account can provide you with some advantages, such as earn a return on your investment. The returns that you can earn are higher than what you could get from a regular checking account. Another advantage of these accounts is that they are insured by the Federal Deposit Insurance Corporation (FDIC). This means that if the bank goes under, you can still get your money back up to $250,000 per bank as an individual account holder.
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Drawbacks
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When you open up a money market account, you typically have to put in a minimum amount of money. If your account balance falls below certain amount, you may have to pay a penalty to the bank. Another potential drawback of these accounts is that you have to pay another penalty if you try to make more transactions than what is allowed. The interest rates that these accounts offer is also lower than what you could get from most CD's or other investments.
Considerations
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This type of account is not for everyone, but it can come in handy in certain situations. If you have a relatively large amount of money that you do not want to invest, money market accounts can be beneficial. For example, if you want an emergency fund where you can earn a return and easily gain access to your money, the money market account makes some sense. The drawback is that you could make more of a return with almost any other investment.
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