Money Market Account (MMA)

A form of savings account with characteristics of a checking account.

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Reviewed By: Austin Anderson
Austin Anderson
Austin Anderson
Consulting | Data Analysis

Austin has been working with Ernst & Young for over four years, starting as a senior consultant before being promoted to a manager. At EY, he focuses on strategy, process and operations improvement, and business transformation consulting services focused on health provider, payer, and public health organizations. Austin specializes in the health industry but supports clients across multiple industries.

Austin has a Bachelor of Science in Engineering and a Masters of Business Administration in Strategy, Management and Organization, both from the University of Michigan.

Last Updated:September 5, 2023

What is a Money Market Account (MMA)?

A money market account (MMA) is a form of savings account with characteristics of a checking account, such as checks and a debit card, and the ability to make a limited number of transactions monthly without paying a charge to the bank.

The number of transactions is restricted to six per month because the Federal Reserve still classifies money market accounts as "deposit accounts" (by Regulation D). 

However, the transaction cap does not include withdrawals made via teller machines and ATMs.

Money market accounts, or MMAs as they are more frequently known, include insurance. It implies that none of your savings will be lost if the financial institution declares bankruptcy or closes its doors entirely.

The National Credit Union Administration (NCUA) offers MMA insurance to credit unions. Like other deposit accounts, MMAs at banks are covered by the Federal Deposit Insurance Corporation (FDIC).

MMAs often offer a greater interest rate than traditional savings or checking accounts is one of the most frequent factors people use to decide between the two. 

But to qualify for the higher rate, you often need to make a larger initial deposit, and you might also need to have a certain balance.

Contrary to MMAs, certificates of deposit (CDs) frequently give significantly higher annual percentage yields (APY), but they need a minimum one-year commitment from the investor.

Although high-interest checking accounts have a greater APY than MMAs, they also have more conditions, such as active management.

How Money Market Accounts (MMAs) Work

Money Market Accounts (MMAs) are interest-bearing savings accounts that typically offer higher interest rates than regular savings accounts. They provide liquidity with limited check-writing and withdrawal capabilities, making them a low-risk option for short-term savings.

Customers can open MMAs at credit unions, traditional brick-and-mortar banks, and internet banks. They provide account users with the characteristics of a checking account along with some of the main advantages of a savings account, such as:

1. Interest

Like savings accounts, MMA account holders can receive interest on their remaining balances. 

Typically, the interest rate is higher than a conventional savings account. However, the interest rate is frequently variable, which implies that it changes as the state of the market changes.

2. Debit Cards

Some banks provide customers with a debit card that they may use to make deposits, withdrawals, and transfers at automated teller machines (ATMs).

3. Check Writing

In addition to using debit cards, customers could also be able to write checks against the balances of their accounts.

Banks frequently require a minimum initial deposit to start an MMA, and balances must be kept above a predetermined level while operational. Banks may levy a service fee if the balance is below that minimum.

People with short-term goals and who wish to earn more interest than they would with a savings account can consider MMDAs. 

So, an MMA could be an innovative solution if you're saving money aside for a specific purchase, such as a trip, a vehicle down payment, or a rainy or emergency fund. However, they are not designed for lengthy objectives like retirement.

Advantages of Money Market Accounts (MMAs)

Modern living can be very pricey. So you know the significance of saving money for significant life events like retirement, paying for education, or purchasing a home.

However, no matter how carefully you prepare, life may be unexpected, and surprises frequently arise along the road. (You probably didn't anticipate the automobile to break down right after you completed paying it off, and surprise! You now need a new one.) 

A reserve for emergencies might lessen the impact. It might be challenging to have money for both anticipated and unforeseen costs. More than 40% of Americans in an emergency said they couldn't afford $400.

An innovative strategy to save might be to choose a bank account that can help you increase your money, provide you with easy access, and secure your money in the meantime.

What type of account should you thus keep your money in? Often known as an MMDA, a money market account can be your most excellent option for conserving money.

Weighing the benefits and drawbacks of money market accounts may be a useful starting point for any choice. Before evaluating how a money market account can fit into your financial strategy, take some time to weigh its benefits and drawbacks.

Here are some significant money market account benefits to consider before deciding where to save your money:

1. Safety

Money market accounts may be low-risk savings alternatives, which is a good perk. In addition, the Federal Deposit Insurance Corporation provides insurance for several MMDAs (FDIC). This gives you a safety net since the government will protect your money up to the permitted limitations.

2. Savings rate 

Money market accounts can provide more excellent annual percentage rates for savings interest than conventional savings accounts. If so, it may be able to help you earn more than a savings account might.

3. Easy access

When you need money right now, money market accounts might provide you with that option. However, your cash isn't kept secret with an MMA, which might make it a beautiful alternative for emergency savings. 

So, if your dishwasher malfunctions and you urgently need to purchase a replacement, you will know that you may withdraw money without incurring fees, as you could with a CD (certificate of deposit). Just remember that there is a limit of six transactions each month.

4. Flexibility 

MMDAs can allow instant access to your money by withdrawing, transferring, or making checks, thanks to online and offline banking alternatives. Even with a debit or ATM card, some banks provide you access to ATMs.

Disadvantages of Money Market Accounts (MMAs)

Before choosing where to store your money, bear in mind the following negative aspects of money market accounts, which are the opposite of those of savings accounts:

1. Balance Requirements

Some banks require a larger minimum deposit to create an MMDA than they would for a checking or savings account.

Additionally, you might need to maintain a minimum balance at all times. If you don't satisfy these conditions, you can be required to pay monthly maintenance costs. 

Before creating this kind of account, you might consider whether you can afford that minimal amount regularly.

2. Limited transactions

Most MMAs only allow six withdrawals or transfers each month because of federal banking laws. That's because MMDAs are made to encourage saving; in other words, the idea is that if you can't withdraw as frequently, you'll wind up saving more. 

You can incur fines or fees if you exceed the six transaction cap. This may be problematic if you need to withdraw additional money immediately but have already made six monthly withdrawals. (That new septic tank can't wait till next month.) 

Similar transaction limitations apply to most savings accounts, but no transaction limits are often used for checking accounts.

3. Varying interest rates

Money market account savings interest rates might vary based on the current state of the market's interest rates. 

This might be a drawback since the rate could decrease, which would result in you earning less money, but it could also increase (which would be a good thing and could lead to more interest earned). It's challenging because you can't foresee what the market will do.

4. Other growth opportunities

Suppose you don't anticipate using these funds anytime soon. In that case, you might look into alternative saving strategies that provide better returns to keep your money in the bank.

More on the Matter of Interest

Let's go a bit more into the subject at hand: how the interest rates on MMAs—often referred to as annual percentage yields, or APYs—compare to those on other kinds of bank accounts.

The national MMA interest rate for banks in the United States was 0.15% as of May 2020. So it implies that you would get $15 in interest after the first year if you were to deposit, say, $10,000 into your MMA.

Comparing it to the typical yearly return generated on a conventional savings account will help. For example, the annual percentage yield (APY) for simple savings accounts used to be much smaller, at about 0.06%. 

The APY is expected to be approximately 0.10% in 2020. It implies that after the first year, if you deposited $10,000 into a conventional savings account, you would earn $10. Although neither is a significant number, you would get more with MMA.

The average rate on certificates of deposit, often known as CDs, is between 0.40% and 0.60%, making them some of the top-yielding bank accounts (for 1- or 2-year CDs, respectively). The drawback of CDs is that your money is locked up for at least one to two years.

MMDAs provide advantages in terms of liquidity as traditional savings accounts and certificates of deposit (CDs) do not grant check-writing rights or choices for withdrawal - without significant penalties in the case of CDs.

Rates and minimum deposits will vary depending on the institution you choose to use as well as the region of the nation in which you are located, just as with any account you decide to start. It is best to compare prices from different vendors. 

MMAs Vs other deposit accounts

Banks and credit unions provide a variety of deposit and money market accounts. Other charges could have characteristics—or even interest rates—that put them on par with or even better than money market deposit accounts.

1. Passbook Savings Account

Similar to MMDAs, regular bank or credit union savings accounts also pay interest, albeit MMDAs often pay a higher rate. To make up for the flexibility (check writing) provided by MMDAs, some ordinary savings accounts offer a little higher interest rate.

Savings accounts and MMDAs are both covered by FDIC or NCUA insurance. Both allow you to deposit as much money as you'd like each month. 

However, unlike MMDAs, regular savings accounts often do not require an initial investment or a minimal minimum amount.

2. High-yield savings account

Banks and credit unions also offer high-yield savings accounts, and depending on the institution, the interest rate may be higher than what you might obtain with that bank's MMDA. 

High-yield savings accounts, like MMDAs, may have higher initial deposits, minimum balances, and maintenance fees or incur penalties if your balance drops below the minimum. They are also FDIC- or NCUA-insured.

3. Regular checking account 

Checking accounts offer limitless transactions, which is a significant benefit over MMDAs (checks, ATM withdrawals, wire transfers, and so forth). Additionally, they are FDIC or NCUA insured. 

This makes checking accounts ideal for routine financial activities like writing checks, paying bills electronically, and getting access to cash through an automated teller machine (ATM). 

Regular checking accounts' major drawback is their extremely low (often zero) interest rate.

4. High-yield/High-interest checking account

Like high-yield savings accounts, this checking account offers interest rates comparable to and occasionally higher than those offered by money market deposit accounts. 

Similar to MMDAs, these kinds of accounts have a minimum daily balance requirement that must be maintained and a fine or cost if it is not met. However, the high-interest rate on high-yield checking accounts typically has a maximum, such as $5,000, over which it does not apply.

5. Rewards checking account

This checking account could provide a sizable welcome bonus and other benefits like high yields, ATM fee reimbursements, airline miles, or cash back. 

The restrictions are similar to those for high-yield checking. Depending on the institution, they may include monthly direct deposits, a minimum amount of debit card transactions, exorbitant fees, and more. 

Apart from that, rewards checking operates like a standard checking account, including FDIC or NCUA protection.

6.Certificate of Deposit (CDs)

A timed savings account is a CD. You consent to deposit a certain amount for a predetermined term—three, six, nine, or twelve months, or multiple years up to ten—in exchange for a fixed interest rate that might be greater than the rate you would receive from an MMDA. 

Depending on the terms of your contract with the bank or credit union, interest on your CD may be compounded daily, weekly, monthly, or yearly.

Researched and authored by Hitesh Sarda | LinkedIn

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