Pros & Cons of Money Market Accounts

A money market deposit account (MMDA) is a savings account that typically pays higher interest than a standard savings account. Restrictions on money market accounts often include maintaining a minimum balance and minimum number of withdrawals. Money market accounts are available through most banks. Investors report both pros and cons of many market accounts.


While money market accounts earn higher interest than savings accounts, they still fall below the market average of interest on other investment vehicles, such as stocks, mutual funds and long-term certificates of deposit. A money market account often pays as high as a short-term certificate of deposit, however, report investment advisers at Top Annuity Pro. Money market accounts do not provide substantial enough interest payments to provide for long-term gains, but interest from a money market fund can help investors at least stay ahead of inflation. The interest is taxable on money markets.


The Federal Deposit Insurance Corporation (FDIC) insures MMDAs up to $250,000. The FDIC reports that some accounts can be insured for even higher amounts when they are linked to certain property investments. Money can safely be saved in a money market checking account that pays a higher interest than a standard checking account as well. There typically are no fees attached to checks written on an MMDA.


Funds in money market accounts are liquid and typically do not carry penalties for early withdrawals. The withdrawals, however, are limited to varying degrees by different banks and can be limited to as few as three to six per month. Credit unions, such as the North Carolina State Employees Credit Union, often have no minimum withdrawal requirements. Credit unions may require a minimum deposit to open an account that can be as little as $250 and carry no service charge fees. Larger banking institutions, such as Bank of America, charge penalties when balances fall below a set minimum. At Bank of America, the minimum deposit required to avoid penalties and fees is $5,000. Funds in a money market account can be taken out as cash or transferred to other accounts. Many money market accounts come with checks, which can be used at any time.



About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."