Money market deposit account
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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.
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[edit] 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 cheques can typically be written, subject to certain restrictions. 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.
[edit] 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 cheque. 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.
[edit] 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 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.
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.
Also, like a checking account, these accounts are insured by the FDIC or a state analog. Although FDIC hardly has enough money to pay off a significant portion of deposits, people assume that FDIC has an implied guarantee by the federal government.
[edit] See also
[edit] External links
- Howstuffworks "How do money market accounts work?" - Describes how to use a United States money market account from the account-holder's perspective
- BanxQuote Money Markets - Dynamically updated high yield savings and high yield jumbo money market and CD rates throughout the United States.
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