What Is a Money Market Deposit Account?
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What Is a Money Market Deposit Account?
A money market deposit account (MMDA) is a type of savings account offered by financial institutions that pays interest or dividend rates that are higher than those offered by traditional savings and checking accounts, and competitive with certificates of deposit. Credit unions generally call these instruments money market accounts. MMDAs are an indirect way to invest in the market for short-term money market securities, and their returns are tied to those of money market investments.
Things To Know
- Money market deposit account returns are tied to those of money market investments.
- Demand for these accounts has increased.
The minimum balance is fairly high
Most money market deposit accounts require a relatively high minimum balance to avoid fees. Minimums of $2,000, $5,000, or $10,000 are common; they can be as high as $50,000 or more at some institutions to get the best rates. A requirement for larger minimum balances can be a disadvantage for investors of limited means.
The demand for these accounts has grown significantly over the decades. In the competitive marketplace, some banks and credit unions have begun to offer money market deposit accounts for initial deposits as low as $1,000 or less, so it is wise to ask what low minimum balance options may be available to you.
Know the restrictions on them
Transactions into and out of MMDAs are subject to restrictions. Generally, a maximum of six withdrawals to third parties is allowed each month; of these, typically three may be with checks or debit cards. However, each institution is free to impose additional restrictions. This allows the institution greater discretion in how it invests funds, theoretically providing higher returns to accountholders.
Note: The six-withdrawal limit is currently suspended due to the COVID-19 situation, and no plans to reinstate it have yet been made.
Funds are insured
Funds deposited into MMDAs are insured by either the Federal Deposit Insurance Corporation (for banks) or the National Credit Union Administration (for federal credit unions and many state-chartered credit unions) for up to $250,000, and up to $250,000 if they are retirement accounts.
