Everything You Wanted To Know About Money Market Accounts

MMDA or a money market deposit account, often called a money market account, happens to be a special type of savings account. Why is it special? You get some features that you usually won’t get in a traditional savings account. With most money market deposit accounts, you receive a higher interest rate than the usual savings account.

MMDA services also include a debit card and check-writing benefits. However, certain restrictions are attached to MMDAs that don’t make them as flexible as traditional savings or checking accounts. Here’s what you need to know about money market accounts.

Insured Deposits

The deposits and earnings of a money market deposit account in a bank have insurance from the FDIC or the Federal Deposit Insurance Corporation. The FDIC works as an independent agency under the federal government. The Federal Deposit Insurance Corporation covers various accounts, including money market deposit accounts, up to $250,000 for one depositor per bank.

Therefore, if you possess other insurable accounts such as savings, checking, and deposit certificates simultaneously, it will all count within the insurance limit of $250,000. In terms of a joint account, they have insurance for an amount of $500,000.

If you have an MMDA at a credit union, the NCUA or the National Credit Union Administration offers identical insurance coverage. If you want to get insurance benefits of over $250,000, open a money market deposit account at more banks or credit unions rather than at only one. However, it would help if you had information that money market mutual funds. And this is irrespective of whether you take one at a bank or a credit union, as they do not have insurance from the government.

Debit Card and Check Writing

Several money market deposit accounts provide debit card and check writing benefits. With these two features, the MMDAs become a combination of both savings and checking accounts. This can prove to be beneficial if you want to avail a higher rate of interest. However, you need to lay hands on your money not regularly but on a limited basis.

Transaction Limits

As with most of the savings accounts, you are restricted to six electronic payments and money transfers out of one MMDA in a month by the Federal Reserve Regulation D. It mostly affects the pre-authorized transfers. This includes overdraft protection, electronic transfers, telephone transfers, wire transfers, ACH transactions, third-party payments through a check or a debit card.

If you cross the allowed limit of transactions every month, the bank may warn you and impose a fine. If you persist with this, the bank might have to revoke the transfer benefits, transfer your account into a regular checking one, or close your account. You can make as many deposits as you want to.

Interest Rates

A major attraction of money market deposit accounts is that they offer a higher interest rate than savings accounts. If you consider the average cases, MMDAs are a better option than traditional savings accounts.

The money market deposit accounts offer a higher interest rate. And that is because they have the authority to make investments in commercial paper, government securities, and CDs or certificates of deposits. Normally, savings account holders are not permitted to do that. The rates of interest offered by money market deposit accounts are variable. This implies that they can change with a change in economic conditions.

Liquidity

Money market mutual funds and money market deposit accounts help you lay your hands on your funds quicker than usual. The MMDA account holders are allowed six transactions every month, as per government regulations. This is the basic difference between money market deposit accounts and money market mutual funds. The latter doesn’t have that facility.

Interest vs. Dividends

The interest you receive from money market deposit accounts is slightly lower than the dividends you get from money market mutual funds. But, the return on each of them depends on the performance of the investments. The return usually doesn’t change with inflation.

MMDAs are a type of savings account and are quite a safe investment. The rate of interest you receive is a prime attraction in the case of MMDAs. And that would ensure that your finances are safe, and you would get the best ROI to secure your future. However, make sure you run this through with your financial advisor before making a long-term financial decision.