Money-market accounts are a very safe form of investment.
Financial money market accounts are a specific type of investment that investors can use as a reliable way to increase their profits. There are both money market bank accounts and money market funds. The funds disperse money to a variety of different securities, while the accounts concentrate the money in a single account that is managed by the bank. These money market investments offer several advantages, but at a price.
Pro: Low Risk
Money-market investments are very low-risk--one of the least risky investments possible. The accounts managed by banks tend to have a very reliable set interest rate, which increases the investment over time. Money-market funds are not bound up in safe accounts, but they are invested in very safe securities, such as those offered by government.
Pro: Insurance
Financial money-market accounts come with FDIC insurance, like many bank accounts. They are automatically insured up to $100,000, or up to $200,000 for a joint account. This means that if the bank that holds the account experiences problems, the government will insure this amount to all account holders. Many banks also include automatic overdraft protection features that link the account to a checking account.
Pro: High Liquidity
Liquidity refers to the ability to change an investment into cash easily. The more liquid an investment is, the more easily the investor can change it into a useful form. Money-market accounts and funds are some of the most liquid investments, and can often be accessed as easily as a normal savings account.
Con: Low Returns
Although financial money-market accounts are extremely safe, they do come with a cost. Their low risk leads to a low return on investment. Higher-risk investments such as stocks have the ability to make large amounts of money very quickly, but the set rate on money-market investments tends to remain the same, giving investors little chance of realizing impressive returns.
Con: Penalty Payments
Money-market accounts that are operated by banks require account-holders to keep a certain amount of money in the account at all times. If the money falls below this amount, the investor must pay penalty fees. The bank also charges fees if the investor withdraws money from the account too often.
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