Money market accounts (MMA) are once again getting more attentions from banks, financial services firms and customers. Of course, the objective of the banks and financial services firms is not the same as the consumer . Consumers want the highest interest rate and the lowest minimum balance, while banks and financial services firms require a healthy opening deposit and minimum balance and in turn offer the lowest interest rate that they can and still attract new deposits. The introduction of MMAs in the mid-1980s came with new rules from the Federal Reserve and higher interest rates – both of which were different from what consumers knew from their savings, CDs or checking accounts at the time.
Today, everyone understands that MMAs require a higher initial deposit, higher minimum balance and a limited number for monthly withdrawals or transfers. Some MMAs have more flexibility than in the past and in today’s economic climate finding the right MMA with the right terms is essential to keeping your fees low and your interest income high. One important feature of MMAs is that they continue to enjoy coverage under the FDIC program to insure depositor’s money in the event that the bank fails. FDIC coverage is currently $250,000 per depositor, per account category for each bank.
Most MMAs requires an initial opening deposit of $ 1,000 to $5,000 or more. The best rates come with more money and the so-called jumbo MMAs usually start at $ 100,000 and go up from there. Once you’ve funded the account you need to maintain a minimum balance to avoid fees and to earn the interest that presumably attracted you to open the MMA. The banks and financial services firms are happy to help you maintain your balance by not allowing you to write more than three checks per month or to transfer funds out of the account more than three times per month. This restriction is driven by banking rules issued and updated periodically by the Federal Reserve and Office of the Comptroller of Currency (OCC), which play a big role in how MMAs are marketed and operated by banks. The rule requires banks and financial firms to “discourage” withdrawals or going below the account minimum by imposing fees and penalty interest on accountholders.
The final factor in determining what MMA is best for you is the interest rate that is payable on the account. In the low-rate environment that we now find ourselves in, it is especially important to know what kind of rate you are getting. Is it a promotional rate that expires at some point? Is it a tiered rate that may increase or decrease (more likely) if certain events occur like exceeding the maximum number of monthly withdrawals or dropping below the minimum balance? Is it a floating rate that is tied to an index? Read the fine print and ask questions when researching what MMA is best suited for you. Current rates have a wide range that is based upon the factors we’ve reviewed here – initial deposit, maintaining a minimum balance and limiting your withdrawals. Today’s MMAs are usually no-frills, deposit your money and let it sit while the bank lends it to someone else. At least in the old days you might get a toaster or calendar for opening an MMA.