Personal Finance - What is Money Market Account?

MMA stands for Money Market Account and it is a type of savings account that usually offers a higher interest. Although it does offer a higher interest rate, a higher minimum balance compared to a traditional savings account is required.

In a MMA, the FDIC or Federal Deposit Insurance Corporation insures the account. This means that the funds in the account are insured in case the bank goes bankrupt. This insurance corporation dates back to 1933, and was formed as a method of protecting the customers when banks fail. As we have seen in recent history, banks do fail on occasion.

Your deposits into a MMA earn interest and you can withdraw money from it. This is very similar to a traditional savings account. The difference is that the number of withdrawals a month is limited and so are the number of checks you can write without incurring fees. Whenever you exceed the limits set on that type of account, the bank will charge fees on a per transaction basis. In addition, the bank will penalize you if your balance drops below the minimum balance required. Each bank has their own schedule of fees, penalties and other charges.

Like a regular savings account, you are issued an account register to keep track of your transactions and you will get bank statements. If you manage your MMA according to the account limits without incurring in any type of fees, you will benefit from the high interest savings. It is a far better option than keeping your money in a regular savings account.

There are versions of Money Market Accounts. Some banks and credit unions offer a HY MMIA, or High Yield Money Market Investment Account. This type of account requires a high minimum account balance. Typically the rule of thumb is that the higher the minimum balance, the higher the interest you get is. This is referred to as tiered interest rate. Some banks will allow you to convert your MMA to this type of account when it reaches a higher balance. This type of money market account also has its requirements.

Money market accounts are a safe way to save money because the FDIC insures them; and when managed within the guidelines, they are an efficient way to get a higher interest on your money. It is advisable to compare the types of MMA that different institutions offer. Once you know what is offered, select the one that delivers the best interest for your money at the institution with the least amount of fees and charges. 

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