What is a money market account?
A money market is an account issued by banks and credit unions. This account provides interest that is sometimes higher than regular savings accounts interests. There are features similar to what you find in savings and checking accounts. However, the account has some restrictions that come with it. For example, there are limitations on how many times you can withdraw money from the account per month.
You can treat the money market account as a combination of a savings account and a checking account, according to MoneyRate.
Money Market Restrictions
The money market accounts are great investment options for those with higher and stable deposits. Although these accounts are great, they come with restrictions. The following are a few restrictions associated with money market accounts.
- There is a minimum balance required in the account
- The number of withdrawals per month is limited
- Your interest rate will depend on your account value. The bigger the account the more interest rate up to max value where the interest can no longer increase
- Some banks can offer you higher rates for a period of time and reduce the rates later.
Benefits of Money Market Accounts
- You will take advantage of a higher interest rate than what you could have from regular savings accounts.
- You can use the account for writing checks and ATM transactions. Keep in mind that there will be restrictions on how many of these transactions you are allowed to make per month.
Disadvantages of money market account
- You will have a limited number of withdrawals. According to Bankrate, you can only have six electronic transfers per month.
- You will pay taxes on the interest you make
- The money you make is too little compared to the inflation rate. In other words, you will still lose money through inflation.
- Most money market accounts require a minimum balance in the account.
- You will be paid a higher interest rate until your account value reaches a certain value. The bank will dictate your return on investment.
- You will only have a higher interest rate if you have deposited a large sum of money.
- Some money market accounts will require a minimum deposit for the account to be started.
