What is a Money Market Deposit?
A money market deposit account (MMDA) is a guaranteed interest-bearing, government-secured money market account that commonly has minimum opening balance requirements and varying interest rates. Money market deposit accounts are associated with higher interest rates than regular savings accounts, while fulfilling the same needs. They are a viable option for individuals who want their money to earn more than it would in a regular savings or checking account.
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History
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Money market deposit accounts were first introduced in the early 1980s. They were authorized by the Garn-St. Germain Depository Institutions Act of 1982, a federal law allowing saving institutions and banks to offer the instrument in an effort to compete with mutual market funds. According to John Downes and Jordan Elliot Goodman in the “Barron's Finance and Investment Handbook,” money market deposit accounts required a minimum balance of $1000, as per the rules of the Depository Institutions Deregulatory Committee. This rule was eliminated in 1986.
Features
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A money market deposit account has no maturity date, requires the maintenance of a certain minimum balance and allows an account holder to write a limited number of checks every month. Specific details of an MMDA account vary among different financial institutions. For instance, an account may require a minimum balance of $3,000 to be maintained over a month, and charge a $20 fee in the month when the account balance falls below its required minimum level.
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Purchase Information
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Banks, brokerage firms and other financial institutions offer money market deposit accounts. Terms on money market deposit account vary between different institutions.
Advantages
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Money market deposit accounts offer higher interest rates than savings accounts, with the interest rate increasing as the account balance increases. Account holders can access their accounts through checks and debit cards. Money market deposit accounts pay regular monthly interest, are insured by the FDIC and allow a certain number of withdrawals per month.
Disadvantages
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Account holders are restricted to a limited number of inter-account transfers or checks monthly, typically three to six. They are also required to maintain a certain minimum balance in their money market deposit accounts.
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References
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