What are Money Market Deposit Accounts

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When money market accounts first came out, most people didn't know anything about them. They were used to putting their money into ordinary bank passbook savings accounts and getting the 5 1/2% (as I recall) interest the government allowed them to pay their depositors.

These funds didn't really become popular until around 1977. That's when the inflation of the decade started to really raise interest rates sky-high. People started wondering, why should I settle for 5 1/2% on my savings accounts when I can get more interest from one of these new-fangled money market savings accounts?

So they became serious competition to banks.

Banks Created Bank Money Market Deposit Accounts

These are the bank's reaction to the competition. The money market accounts they offer are insured money market accounts

These bank money market accounts also invest in short-term, fixed-rate securities.

However, the main selling point for banks is that their version of these money market savings accounts are covered the insurance from the FDIC or Federal Deposit Insurance Corporation, which means that the government says that if the bank goes out of business, they'll reimburse you for money lost up to $100,000.

However, the banks impose many limits on how many checks you can write on these accounts. Also, they require you keep a higher minimum balance. These are governed by Regulation D, Reserve Requirements of Depository Institutions, and limits you to 6 withdrawals per month with no more than 3 checks written against the account.

Plus, because their expenses are higher (including the money they must pay to the FDIC for their "insurance"), money market deposit accounts pay lower dividends than general purpose money market funds.

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