MMA is an interest-bearing deposit account held with a financial institution such as a bank or credit union. Money market accounts, which may also be called money market deposit accounts, are distinguished from other kinds of accounts by the presence of certain unique characteristics.
Money market accounts often come with the ability to write checks, use debit cards, and offer a larger interest rate than traditional savings accounts (those with passbooks). They may also come with limits that make them less versatile than a standard checking account. They are essential components in the process of determining tangible net worth.
Customers of conventional, internet, and online-only banks, as well as members of credit unions, may open money market accounts, which are types of financial products. They provide account users with some of the most important advantages of a savings account while also giving them the features of a checking account, including the following perks and features:
MMAs, much like savings accounts, provide account owners the opportunity to earn interest on the balances of their accounts. The interest rate is often superior to that of a conventional savings account. However, the interest rate is often variable, which means it shifts up and down according to how the market is doing.
Some financial institutions provide customers with a debit card alongside the account, which enables cardholders to use ATMs to withdrawals, make deposits, and transfers.
In addition to using debit cards, customers may also have the option of writing checks against the available account in their accounts.
Banks often demand a minimum initial deposit when opening a money market account (MMA). Throughout the account is active, the balance must be kept at or above a particular level. The bank may assess a service fee if the account balance falls below the specified minimum level.
People with more immediate financial objectives might consider opening a money market account rather than a traditional savings account since it offers a higher rate of return on investments. As a result, a money market account (MMA) could be a smart choice if you're putting money down for a particular purchase, such as a trip, the down payment on a vehicle, or money for a rainy day or an emergency fund. Long-term goals, such as retirement, are not what they are designed for at all.
Money market accounts have their fair share of benefits and drawbacks compared to other kinds of accounts. This is particularly true when you consider the context of the comparison. Higher interest rates, the ability to write checks, and access to debit card privileges are some of its perks. Customers of financial institutions like banks and credit unions are often required to create an account with a minimum deposit of money and maintain a minimum account balance to keep their accounts open. Many will charge you a monthly fee when the amount drops below the minimum.
Additionally, these accounts protect government insurance. Accounts that are kept at credit unions are guaranteed by the National Credit Union Administration, in contrast to bank accounts, which the Federal Deposit Insurance Corporation covers. Certain kinds of accounts, such as MMAs, are protected up to a limit of $250,000 per depositor and per bank by the FDIC and the NCUA, respectively. All of the insurable accounts held at a single financial institution, including checking, savings, and certificates of deposit, contribute to the maximum coverage of $250,000. Accounts held jointly are protected up to a maximum of $500,000. Potential downsides include restricted transactions, fees, and minimum balance restrictions.
The fact that money market accounts provide interest rates that are greater than those of savings accounts is one of the primary draws of these accounts. For instance, the typical annual percentage yield (APY) for an MMA in May of 2022 was 0.08%, but the typical APY for a savings account was around 0.07%.
The difference between the two categories of accounts will widen if the average interest rate is greater, such as it was throughout the 1980s, 1990s, and a significant portion of the 2000s decade. In contrast to savings accounts, money market accounts are allowed to invest in certificates of deposit (CDs), government securities, and commercial paper. This enables money market accounts to provide interest rates that are greater than those offered by savings accounts.
Because the interest rates on money market accounts are variable, they may go up or down depending on the level of inflation. The frequency with which that interest is compounded—annually, monthly, or even daily, for example—can significantly influence the return that is accrued to the depositor, particularly if the depositor has a large sum in their account.
