Financial gurus will always advise that you invest in money market accounts as an integral part of a diversified portfolio. While they are relatively low yielding, they are also very low risk and virtually impervious to stock market fluctuations.
How They Work
Money market accounts are fairly straightforward, you put money in the bank, the bank pays you interest. They are similar to typical savings accounts but there are differences. First, and most importantly, money market accounts usually pay significantly better interest. In exchange for the higher returns though, you need to maintain a large minimum balance. There are also restrictions on the number of withdrawals you can make in a month.
An important Part of Any Portfolio
Because they are FDIC insured, just like savings accounts, money market accounts are very safe investments. While you can't really count on money market accounts for great returns, you can be sure that you won't lose money on them, and you will even gain a little. This is why it is important to have money market accounts in your investment portfolio; they act as something of an insurance policy. They can cushion the blow in the event that you lose money on potentially more profitable but far riskier options.
Better Interest Rates
Very often, the best options for money market accounts are not offered by banks but by credit unions. This is due largely to the fact that credit unions are typically non-profit. When investing in money market accounts, it's always best to research the best rates before committing to a particular option.
You should avoid withdrawals from money market accounts as much as possible, especially if you got a good deal on interest. There are stiff fines for going under the minimum balance, as well as for withdrawing too many times. Many seasoned investors "park"their money in money market accounts when the market is bearish. For whatever purpose you intend for them, money market accounts are always a winning investment.
