Is a Money Market Checking Account Also a Savings Account?
Money market deposit accounts (MMDAs) are bank savings accounts that have some of the withdrawal capabilities of checking accounts. Some people think money market accounts are checking accounts because money market account holders can write checks. Money markets are intended for short-term savings and pay interest on a monthly basis.
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History
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In 1982 Congress passed the Garn-St. Germain Act, which sanctioned the creation of money market deposit accounts. Congress wanted to create an account covered by the Federal Deposit Insurance Corporation that would offer an alternative to investment money market mutual funds. The FDIC was created in 1933 to address a growing lack of confidence in the banking system during the Great Depression. FDIC-insured MMDA accounts offered consumers the federal backing that investment money market accounts lacked.
Features
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Money market deposit accounts allow account holders to make up to six withdrawals per month. The withdrawal limit applies to checks, automated clearing house items and debit card point-of-sale transactions. Transfers to other accounts within the same bank are not restricted. Withdrawals at automated-teller-machines, in-person withdrawals at the bank and automatic loan payments do not count toward the withdrawal limit. The Federal Reserve's Regulation D imposes withdrawal limits on all savings accounts to discourage misuse.
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Benefits
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Money market accounts pay higher interest rates than regular savings accounts on balances above $10,000. Many banks have price tiers that bump rates on balances above $50,000 and $100,000. Some banks link money market sweep accounts to checking accounts and transfer surplus balances to the money market each night to earn interest. When the checking account balances are depleted, an automatic feature sweeps the money back from the money market account. Sweep transfers are not restricted under regulation D.
Considerations
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Most banks require money market account holders to maintain balances of $10,000 or more. When account balances fall below the minimum, even for one day, the banks assess a service charge of $15 or $20. When interest rates are low, the rates paid on large balances in money market accounts are scarcely different from balances paid on savings account that have no balance requirements. Short-term CDs usually offer higher returns than money market accounts.
Warning
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FDIC limits coverage to $250,000 per account owner, per financial institution. Many people keep large balances in money market accounts, which together with balances in certificates of deposits often exceed the FDIC coverage limits. To extend FDIC coverage, people can add pay-on-death beneficiaries to their accounts as the FDIC affords each beneficiary a further $250,000 of coverage. Multiple account owners also expand the coverage. Many people split deposits between several financial institutions to avoid breaching the FDIC limits.
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