Money market accounts are a type of investment account. Many investors include them in their investment portfolios, while others do not. Because each investor is different in terms of their risk tolerance, desired rate of return, and their investment time horizon, some may choose to invest their money into a different kind of asset. If you are looking to invest your money, this article will explain the advantages and disadvantages of investing in a money market account, and help you decide if it is the right investment for your portfolio.
Advantages to Money Market Accounts
Money market accounts can be opened at nearly every financial institution. Because it is a type of savings account and the funds are backed by the government, money market accounts are considered no-risk investments. Money market accounts typically require a larger opening deposit than a standard savings account, so they pay out a slightly higher rate of return. The rate of return is directly proportional to the investor’s level of deposited cash. The more you have on deposit, the higher the rate of return is. You also have full access to your funds. You can withdraw all of your money or only a portion at any time without any penalties or fees. Usually a checkbook is given to the investor as a way to access the funds.
Disadvantages to Money Market Accounts
Money market accounts are considered no-risk investments so they do not produce a very high return, usually a yield just slightly higher than a standard savings account. In addition, the rate is not fixed. So if the savings rates fluctuate, the rate of return could actually decrease. There is also a limit to the checks writing capabilties. You are only allowed a certain number of them per month (usuallly six), and they usually have to be for an amount over $100. Money market accounts are not for investors looking for a large return over a period of time. If an investor is looking for a greater rate of return, they may want to consider a certificate of deposit (CD), mutual funds, stocks or bonds.
There are both advantages and disadvantages of investing in a money market account. To know if it is the right investment account for you, will be based on your risk tolerance, desired rate of return, and investment time horizon.