Money market account

A money market account (MMA) or money market deposit account (MMDA) is a non-financial account that pays interest based on current interest rates in the money markets.^[1]

Money market accounts typically have a relatively high rate of interest and require a higher minimum balance (anywhere from $1,000 to $10,000 or $25,000) to earn interest or avoid monthly fees. Like other bank deposits, they are liabilities from the bank's perspective. They should not be confused with money market funds.

United States

History

The Depository Institutions Deregulation and Monetary Control Act of 1980 set in motion a series of steps designed to phase in the deregulation of bank deposits, permitting a wider variety of account types and eventually eliminating interest ceilings on deposits. By the subsequent Garn–St. Germain Depository Institutions Act of 1982, on December 14, 1982, money market accounts were authorized with a minimum balance of no less than $2,500, no interest ceiling, and no minimum maturity, allowing up to six transfers out of the account per month (no more than three by check) and unlimited withdrawals by mail, messenger, or in person.^[2] Minimum denominations were eliminated on January 1, 1986, and the limitation that no more than three of the maximum six monthly outward transfers could be by check was eliminated on May 3, 1988 .

Today

In the United States, an MMA is a deposit account that is considered a savings account for some purposes, but is an account 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, until July 21, 2011, forbade paying interest on demand deposits. 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 considered demand deposits, and thus did not run afoul of Regulation Q.

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 under Regulation D.^[3] 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, teller, and bank-by-mail transactions are not counted towards the total.

References

1. Dlabay, Les R.; Burrow, James L.; Brad, Brad (2009). Intro to Business. Mason, Ohio: South-Western Cengage Learning. p. 482. ISBN 978-0-538-44561-0.
2. Gilbert, Alton, "Requiem for Regulation Q: What It Did and Why It Passed Away", Federal Reserve Bank of St. Louis, February 1986
3. "Press Release", Federal Reserve Board, May 20, 2009.