Money Market Account
Definition
A money market account (MMA) is a type of savings account offered by banks and credit unions that typically earns a higher interest rate than regular savings accounts, while offering some check-writing privileges.
Detailed Explanation
A money market account is a bank account that has the features of a savings account with some features of a checking account. MMAs typically offer higher interest rates compared to traditional savings accounts, making them an attractive option for savers looking to earn more on their deposits. The interest rate on a money market account may vary and is often tiered, based on the account balance. Higher balances may qualify for higher rates.
Unlike regular savings accounts, MMAs usually allow for limited check writing and debit card access, offering greater flexibility for account holders who need occasional transactional capabilities. However, like savings accounts, they are subject to Regulation D, which limits certain types of withdrawals and transfers to six per month. Banks may impose minimum balance requirements and fees if the balance falls below a specified amount.
MMAs are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), providing safety for depositors’ funds up to applicable limits.
Example
Janet opens a money market account with an initial deposit of $5,000. She earns an interest rate of 1.5% annually, which is higher than her regular savings account. The account allows her to write checks and use a debit card to access funds directly, though she is mindful of the six-transaction limit each month.
Key Articles Related To Money Market Accounts
Related Terms
Interest Rate: The percentage at which interest is paid by a borrower for the use of money, typically expressed as an annual percentage of the principal.
Liquidity: The ease with which an asset can be converted into cash without affecting its market price.
Regulation D: A federal regulation that limits the number of certain types of withdrawals and transfers from savings or money market accounts to six per statement cycle.
Tiered Interest Rate: An interest rate structure in a bank account that pays different rates depending on the account balance, with higher balances receive higher rates.
FAQs
How does a money market account differ from a savings account?
A money market account typically offers higher interest rates, limited check-writing abilities, and debit card access, unlike a regular savings account.
Are there fees associated with a money market account?
Some money market accounts may have monthly maintenance fees, especially if the account balance falls below a certain threshold. However, many institutions waive these fees if you maintain a minimum balance.
Is the interest earned on a money market account taxable?
Yes, like savings accounts, the interest earned on a money market account is taxable income.
Editor: Colin Graves