What Makes Money Market Accounts Safe or Risky?
Money market accounts (MMA) or money market deposit accounts (MMDA) are another type of financial asset, designed to give you a low rate of return in exchange for capital preservation
(i.e. low volatility).
What are MMAs?
These accounts are a type of "cash equivalent", and are very similar to money market funds
They both share characteristics with other cash-based assets such as savings and checking accounts, certificates of deposit, and actual paper money.
Money markets are almost identical to savings accounts, but pay higher interest rates in return for higher minimum account balance requirements.
Why open a MMA?
This account type is a good place to keep money short-term.
For example, you may be starting an emergency savings account, but want to keep that money separated from your checking account.
Federally insured by the FDIC
Same level of service as checking accounts
Banks require a minimum balance or minimum initial deposit to receive a high interest rate
Banks can reduce interest payments or impose fees for low balances
Banks limit the number of withdrawals or transfers per month
- Banks can impose fees and/or close accounts if you exceed these limits, which can even include ATM transfers
Factors affecting the Return of MMAs
Similar to money market funds, money market accounts are affected by the following "outside" influences:
- Rising/Falling Interest Rates
- Falling Credit Ratings
- Financial health of the firm offering the account
- Savings Accounts
- Checking Accounts
- Certificates of Deposit
Where to open a Money Market Account
You can open an account with a national, regional, local, or community bank.