Is a Money Market Account a Time Deposit?
Money market accounts are not time deposits, although the two account types do have some similarities. Both account types are federally insured and pay interest. Some people confuse money market accounts with money market mutual funds, and to confuse matters further, money market mutual funds often contain time deposits. However, money market accounts and time deposits are both standard bank products, whereas money market mutual funds are portfolios of securities that are sold by investment firms.
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Time Deposit
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Time deposits are savings accounts that you can open at banks and credit unions. The name of these products refers to the fact that depositors agree to keep money in the accounts for a specified period of time. In the past, time deposits were called certificates of deposit because banks gave you a certificate that you had to present at the end of the CD term in order to get your money back. Even though certificates are no longer used, many banks still refer to time deposits as CDs. Money market accounts are open-ended accounts that you can withdraw your funds from at any time.
Interest Rate
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Time deposits pay a fixed interest rate and the time deposit issuer notifies you of the rate prior to opening the account. Time deposit rates tend to follow the federal funds rate, which reflects the cost of interbank lending, but the rates are usually set at 1 or 2 percent above the federal funds rate. Money market rates also roughly follow the federal funds rate, but money market rates can change on a daily basis and are usually lower than time deposit rates. Some banks assure you of a certain rate on a money market for the first 30, 60 or 90 days, but thereafter the rate can change on a daily basis.
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Insurance
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The Federal Deposit Insurance Corporation insures money held in banks on a per-customer basis. FDIC insurance covers both the money that you hold in time deposits and money held in money market accounts up to $250,000 (as of 2011). You can enjoy double the insurance protection if you have joint accounts. The National Credit Union Administration provides share insurance to accounts including money markets and CDs that are held at credit unions. The NCUA also extends to $250,000 per person.
Withdrawal Methods
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When your time deposit matures you typically have to go to the bank to access your funds. Most banks provide you with a 10-day window known as a grace period during which you withdraw the money. If the 10-day period ends without you making a withdrawal then a new CD term begins and you have to pay an interest penalty to access the funds. On a money market account you can make up to six withdrawals per month using checks, your debit card or online transfers. You can make unlimited money market withdrawals at ATMs and there are no limits on in-branch withdrawals.
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