A: A money market account (MMA) is neither a checking account nor a savings account, though it does contain elements of both. Like a checking account, an MMA offers check-writing privileges, though they are limited to around three per month. Some MMAs also offer a debit card. Like a savings account, an MMA is an interest-bearing account, though the interest rates on MMAs are generally higher than savings accounts. As with checking and savings accounts, MMAs are deposit accounts insured by the Federal Deposit Insurance Corporation (FDIC). Because it is considered to be a savings-type instrument, withdrawals are limited by federal regulation to six per month. If more than six withdrawals occur within a month, the bank is required to change the account’s status to a non-interest-bearing checking account.
MMAs were created by banks as an alternative to savings accounts to be able to offer more competitive interest rates. The tradeoff for higher rates is a higher minimum deposit requirement. With many MMAs, in order to receive the highest interest rate available, accounts are required to maintain a minimum daily balance. 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 to double digits, offering depositors the opportunity to generate high, riskless returns. Between 2010 and 2015, when the Federal Reserve Board cut interest rates to near zero, interest rates on MMAs fell to below 1%, though they were still higher than most savings accounts.
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