What Is A Money Market Account And What Are The Advantages And Disadvantages

Money Market Pros and Cons

Money Market Account: Pros & Cons

Money market accounts are a popular type of investment that combines some features of a checking account and a savings account. They're often used for tucking away large sums of money such as tuition, mortgage payments, emergency funds, quarterly tax payments, and other large expenses because they gain interest while still providing flexible access.

Unlike some types of investments, money market accounts are intended to be short term and can have a life cycle of a year, or 90 days, or less.

Like every type of security, money market accounts have their own set of advantages, disadvantages, and certain money market risks. Let's take a look.

Advantages

Money market accounts are a reasonably safe way to store funds in an account that'll earn some interest but still give you access to the funds.

FDIC Insured: This provides the funds in the money market account the same protection as in a savings account, up to the maximum allowed by law. (Learn more about money market account vs savings account.)
Higher Earning: Money market accounts typically earn a higher interest than a savings account and therefore yield higher returns.
Customer Perks: Banks commonly give their money market investors additional perks such as connecting it other accounts, bank transfers, or the waiving of some penalties.

However, no account is perfect, and there are a few things to consider before you commit.

Disadvantages

Money market accounts are not ideal for replacing your checking or savings account because despite the easy access, they're less liquid. They have certain restrictions, and the penalties for exceeding those restrictions can be high.

Minimum Balance: You typically need to maintain a monthly minimum balance to avoid a monthly account fee. And that minimum can be high.
Interest Rate Hit: In addition to the monthly maintenance fee, the interest rate can decrease if you don't maintain the monthly minimum balance.
Fluctuating Interest: Interest rates for money market accounts, which are already lower than many other types of investments, can fluctuate depending on changes in the overall market.

Money Market Risks

Inflation, which makes money itself less valuable as a currency, can impact the value of the funds in a money market account. Additionally, even though money market funds are FDIC-insured, they don't carry the same type of FDIC insurance as savings accounts. This makes money market accounts a slightly more aggressive investment than a CD for instance. While these money market risks are small, they're still worth keeping in mind. It's also a good idea to compare money market accounts from different banks and credit unions.

Account vs Fund

One money market risk is confusing a money market account with a money market fund. Money market funds are mutual funds sponsored by companies and are not insured. Money market accounts are interest-earning savings accounts. To learn more, visit Money Market Funds vs. Money Market Accounts.

HomeStreet Bank Money Market Accounts

If you've weighed the pros, cons, and money market risks, and you're ready to speak with an investment professional, HomeStreet Bank offers money market accounts with a low minimum opening deposit. It also includes digital banking access, account alerts, and access to speak to a Personal Banking Representative.

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Money Market Account
Money Market Account vs Savings Account
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