A money market account (MMA) is neither a checking or a savings account but it has characteristics that are similar to both. Money market accounts usually offer higher yields than savings accounts. They are able to offer a more attractive interest rate by typically requiring a higher minimum balance, and through restrictions on the number of withdrawals that can be made over a given period of time.
Money Market Accounts: How They Work
Like a checking account, an MMA offers check-writing privileges, but they are limited by Federal law. Some MMAs also offer debit cards. As with checking and savings accounts, MMAs are deposit accounts insured by the Federal Deposit Insurance Corporation (FDIC).
These are savings-type instruments with withdrawals limited to six per month by the Federal Reserve's Regulation D. If more than six withdrawals occur in a month, the bank can charge a fee or change the account status to a non-interest-bearing checking account.
Banks created MMAs to offer more competitive interest rates than those on savings accounts. The tradeoff for higher rates is often a higher minimum deposit requirement. With many MMAs, the account has to maintain a minimum daily balance to receive the highest available interest rate. Many MMAs have tiered savings levels that offer higher interest rates for higher levels of savings.
MMAs became popular during the 1980s, when interest rates rose into the double digits, giving depositors an opportunity to generate high, risk-free returns. Investing deposits for MMAs are often held in vehicles such as certificates of deposit, government securities, and commercial paper that offer higher yields than are generally found in savings accounts.