RateAPY

Advantages of Using a Money Market Account

Posted by: RateAPY Bank Rates News
November 25th, 2009

Money market deposit accounts, or MMDAs, combines the advantages of both checking accounts and savings accounts but with some restrictions. Checking accounts are considered “transaction accounts” and are not permitted to earn interest according to Regulation Q of US banking law. Savings accounts are non-transaction accounts and so can earn interest. Money market accounts are a kind of hybrid–they typically offer the benefits of withdrawals (with limitations) and checkwriting but still earn a high interest rate. Money market accounts are deposit accounts and so are insured by the FDIC.

In order to comply with this provision of Regulation Q, banks must discourage customers from using money market accounts like a transaction account. Banks usually accomplish this by requiring large minimum balances and charging high fees for low balances or excessive transactions. If a customer repeatedly uses a money market account as a transaction account, the banks are normally required to convert the account to a checking account.

If you have a high balance requiring low risk and few transactions–for example, retirement savings–you may consider an MMDA. Compare money market interest rates between banks to find the best account for your needs.