Money market deposit account


Money market deposit account

A money market account is a deposit account with a relatively high rate of interest, and short notice (or no notice) required for withdrawals. In the United States, it is a style of instant access deposit subject to federal savings account regulations, such as a monthly transaction limit.

United States

In the United States, a money market deposit account is a deposit account that is considered a savings account for some purposes, but upon which checks can typically be written, subject to certain restrictions. Like a Negotiable Order of Withdrawal account, it is structured to comply with Regulation Q, which forbids paying interest on checking accounts. Thus money market deposit accounts are accounts that bear interest, and on which checks can be written, but, due to various restrictions, are not legally checking accounts, and thus do not run afoul of Regulation Q.

Typical restrictions are that a fairly high minimum balance must be maintained in order to avoid fees. With the advent of online banking, many banks are able to pay a high interest rate on a low balance, sometimes as low as $1. A debit card is often issued for making withdrawals.

In theory, the restrictions allow the bank to invest the money with more discretion, allowing a higher return. The return is often competitive with money market mutual funds, although nothing requires a bank to invest deposits in these types of accounts into the money market.

Regulations in the US

Since the account is not considered a transaction account, it is subject to the regulations on savings accounts: only six withdrawal transactions to third parties are permitted per month, only three of which may be paid by check. Banks are required to discourage customers from exceeding these limits, either by imposing high fees on customers who do so, or by closing their accounts. Banks are free to impose additional restrictions (for instance: some banks limit their customers to six total transactions). ATM transactions may or may not be counted.

Comparison with "Money Market Funds"

Although money market deposit accounts have a similar name to money market funds, they are not the same: a money market fund consists of "assets" held by a brokerage (or bank) "on behalf" of "investors," while a money market deposit account is a "deposit" at the bank, and hence a "liability" of the bank towards depositors.

A money market fund is a kind of mutual fund (technically, a regulated investment company). Investors receive shares in this company, which buys securities (for example, commercial paper). There are rules on what kind of securities may be held and rules about diversification. Thus, investors have risk on the "assets," but not on the "bank."

A money market account is simply a "liability" of the bank (albeit a high-priority one). It is a note on the bank's books that it owes someone money. It has no specific assets; essentially, it is backed by the entire bank. Thus, investors have risk on the bank, but not (directly) on any assets that the bank may invest in with these deposits – in fact, the deposits will not in general match up with any particular assets: they are "simply" one among many liabilities of the bank.

Also, like a checking account, these accounts are insured by the FDIC or a state analog.

ee also

*Negotiable Order of Withdrawal account

External links

* [http://money.howstuffworks.com/question724.htm Howstuffworks "How do money market accounts work?"] - Describes how to use a United States money market account from the account-holder's perspective
* [http://www.azsecc.com/understanding-a-money-market-account.html Understanding Money Market Accounts]


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • money market deposit account — ( MMDA) A bank deposit account designed to pay a higher rate of interest to depositors than might otherwise be earned in checking or savings accounts. Money market deposit accounts do not have specified maturities. Their rates are administered by …   Financial and business terms

  • money-market deposit account — MMDA A high yielding savings account introduced in the USA in 1982 to allow deposit taking institutions to compete with the money markets for savers funds. As long as the account has a balance of more than $1000 there is no regulatory limit on… …   Big dictionary of business and management

  • Money Market Deposit Account — ⇡ Finanzinnovationen …   Lexikon der Economics

  • money market demand account — ( MMDA) An account that pays interest based on short term interest rates. Same as a money market deposit account …   Financial and business terms

  • Money market fund — This article is about the type of mutual fund. For the type of bank deposit account, see Money market account. A money market fund (also known as money market mutual fund) is an open ended mutual fund that invests in short term debt securities… …   Wikipedia

  • Money market account — This article is about the type of bank deposit account. For the type of mutual fund, see Money market fund. Banking …   Wikipedia

  • Money Market Account — A savings account that offers the competitive rate of interest (real rate) in exchange for larger than normal deposits. Also known by the acronym MMDA , which stands for money market demand account or money market deposit account . Many money… …   Investment dictionary

  • Deposit account — Deposits redirects here. For other uses, see Deposit (disambiguation). Banking A series on …   Wikipedia

  • Money market — This article is about the financial market. For the fund type, see Money market fund. For the bank deposit account, see Money market account. Finance …   Wikipedia

  • money market — the short term trade in money, as in the sale and purchase of bonds and certificates. [1925 30] * * * Set of institutions, conventions, and practices whose aim is to facilitate the lending and borrowing of money on a short term basis. The money… …   Universalium