The Cons of Money Market Accounts
Money market accounts are low risk savings accounts that are insured by the Federal Deposit Insurance Corporation. This makes money market accounts a good choice for those interested in investing in low risk, long-term investments. Although there are some upsides to investing in a money market account, several disadvantages exist as well.
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Low Interest Rates
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Although money market accounts are relatively safe investments, they are safe for a reason. The interest rates on money market accounts are quite modest compared to other investments, such as money market mutual funds. As of 2010, according to Bankaholic.com, money market accounts in the United States peak at 1.39 percent. This is a relatively small gain if you want to earn a significant amount of money on your cash.
Large Minimum Balance Required
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Money market accounts often require a large minimum balance. Therefore, although your funds are accessible in a money market account, you must have a minimum amount of money in the account at all times. For example, many accounts require you have at least $10,000 in the account. If you dip below the minimum balance, there is often a penalty fee charged.
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Limited Transactions and Transaction Fees
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Money market accounts often have a limited number of transactions you can make per month. This can be a problem if you run into an emergency and need access to your cash. If you exceed the maximum amount of transactions in a given month, you'll likely be charged a fee. Furthermore, transaction fees are often added on to an account. For example, some banks may charge a fixed fee per transaction.
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