A money market account is an account that bears interest at a bank or credit union. However, it should not be confused with a money market mutual fund. A money market account is also referred to as money market deposit accounts (MMDA).
Money market accounts (MMA) have some unique features that cannot be found in other types of accounts – most money market accounts pay a higher interest rate than a regular passbook savings account and often get the privileges of check writing and getting a debit card. However, money market accounts also come with restrictions that make them less flexible than a regular checking account.
Money market accounts are different because they combine the best features from the savings accounts and the checking accounts. Although you still get to give up some privileges, you get from other accounts. It has its merits and demerits.
History of Money Market Accounts
Before the early 1980s, the federal government placed a limit on the rate of interest that banks and credit unions could give the customers on savings accounts. A lot of institutions resorted to giving out incentives such as small appliances that included toasters and waffle irons to attract deposits from customers.They had to do this because they couldn’t compete with money market mutual funds when it came to interest rates.
The money market mutual funds were Introduced in the 1970s. Brokerages and mutual fund companies trade the Money market mutual funds. However, after pressure from the banking industry, Congress approved the Garn-St. Germain Depository Institutions Act in 1982. The act allowed banks and credit unions to offer money market accounts to customers, and it paid a money market rate, which was higher than the previously approved rate.
How Money Market Accounts Work
You can access money market accounts in most traditional and online banks and at credit unions. They have both pros and cons when compared with other types of accounts. Some of the advantages of the pro include higher interest rates, insurance protection, and check writing and debit card privileges. While some of the cons are limited transactions, fees, and minimum balance requirements.
The advantages of the money market according can be summed into its earning ability and the easy access it offers when compared to another form of accounts. Although, there are limits to how you can take out money and this might not be favorable to some set of people.
Higher interest rates
Perhaps, the biggest attraction of the money market accounts is that they offer better interest rates than savings accounts. According to bank rate, in early 2019, the average interest rate for money market accounts was 0.15%, while the average savings account stayed at 0.09%. The highest money market account rate that was offered by an institution was as high as 2%, while the highest savings account rate wasn’t more than 1.90%.
For example, during the 1980s and 1990s, and well as a large part of the 2000s, the overall interest rate was higher, and this caused the gap between the two types of accounts to grow wider. As a result of this, money market accounts became further attractive. Money market accounts offered a higher interest rate because they had the permission to invest in certificates of deposit (CDs), government securities, and commercial paper – a thing in which savings accounts don’t have the permission for.
The interest rates on money market accounts vary, which is as a result of rising or fall in inflation. How the total interest is compounded yearly, monthly or daily might have a considerableimpact on the returns of the depositor, especially if they constantly keep a high balance in their account.
Another amazing thing about the money market accounts is that it provides federal insurance protection, something money market mutual funds do not do.
Every money market account at a bank is insured by the Federal Deposit Insurance Corporation (FDIC), which an independent agency of the federal government. The FDIC looks after some particular type of accounts, which includes the money market account, and is up to $250,000 per depositor per bank.
In a case where the depositor has other insurable accounts at the same bank (can be checking, savings, certificate of deposit accounts), they are all included in the $250,000 insurance limit. In the case of Joint accounts, they have a higher limit and can be insured for up to $500,000.
When dealing with credit union accounts,the equivalent of the FDIC is the National Credit Union Administration (NCUA). They provide parallel insurance coverage, which is $250,000 per member per credit union, and $500,000 for joint accounts. If a depositor wants to insure more than $250,000, the simple way to achieve that is to open accounts at more than one bank or credit union.
Debit cards and check writing
Money market accounts ensure easier access to your money. You are allowed to withdraw cash and write checks, as well as debit cards that will enable you to make purchases anywhere and anytime.
The easy access offered by money market accounts along with its juicy interest rate is what makes it great.
Limits on transactions
One disadvantage of the money market account is that the Federal Reserve Regulation D restricts depositors to a total of six transfers and electronic payments each month.
Depositors who exceed the limits may be incurring a fine. In the case they continue with it, the bank is required to put an embargo on their transfer privileges,move them into regular checking or close the account
However, depositors are free to make an unlimited number of transfers in person at the bank, by mail, by messenger, or at an ATM. They are also eligible to make as many deposits as possible. The types of transfers affected include pre-authorized transfers (including overdraft protection), telephone transfers, electronic transfers, checks or debit card payments to third parties, ACH transactions, and wire transfers.
Minimum balance and fees
Money market accounts require a large amount for its minimum balance. You can open a savings account with little deposit, but when it comes to money market accounts, you might need as much as $2500 to serve as the first deposit. If you keep below the minimum balance in your account, you’d have to pay monthly fees, and this will affect the returns you get on your money.
You also have to be wary of interest rates that sound too good to be true on money market accounts. Some make this interest rate a promotional thing before reducing it later, make sure you confirm before opening a money market account.
Uses of Money Market Account
Money market accounts are good for the money you are not going to need immediately. It is best to keep the money you need in the future in a money market account, as it will help you earn profit as you keep your money safe and accessible at all times.
It is best to keep large funds, and you don’t frequently need in money market accounts. It isn’t the best account to keep frequently needed funds and regular expense money due to the limit on check-based payments you can make.
Funds like emergency funds, tuition, and yearly vacation funds can be kept in the money market account. You can also keep funds like your monthly mortgage in a money market account to get some interest.
Accounts that can that can be alternatives to Money Market Accounts
There are some alternatives to the money market account that have their benefits and are by banks and credit unions.
Passbook savings accounts
The difference between this and money market accounts is that regular savings accounts usually have no initial deposit or minimum balance requirements. These accounts also pay interest, even though they aren’t usually as much as that of a money market account. Similar to money market accounts, passbook savings accounts also have insurance from FDIC and NCUA. They both also restrict depositors to six transfers per month with little adjustments’.
Money market mutual funds
Unlike the money market account, money market mutual funds, which are offered by brokerage firms and mutual fund companies, do not come with FDIC- or NCUA-insurance. However, they invest in safe short-term vehicles such as CDs, government securities, and commercial paper, which make them be ranked as low-risk investments.
As the money market account, money market mutual funds also offer quick access to the depositor’s cash. While money market accounts are restricted to six-transactions-per-month, money market mutual funds do not have that restriction.
However, the companies that offer them can place limits on how often depositors can reclaim shares or require the checks they write to be for over a certain amount. The returns on money market mutual funds tend are usually higher than those on money market accounts.
High-yield savings accounts
Several banks and credit unions offer high-yield savings accounts, and the interest rate may be better than on their money market accounts, depending on the institutions. The FDIC or NCUA also insure High-yield savings accounts.
A disadvantage they carry compared with money market accounts is that they may likely carry more rules, such as direct deposits requirements or at least a certain number of transactions per month to avoid penalties.
- Financial performance impacted by the pandemic
- Expected credit loss (ECL) charges of £45.8 million recognised on loans and advances to customers
- Profit before tax (PBT) was impacted by the adverse effects of COVID-19 and the subsequent provisions set aside, reducing by 89% to £5.9 million
- Customer deposits rose by 25% to £7.6 billion while capital remained strong with a CET1 ratio of 12.3%
- A total of 15.9k payment holidays granted across the Group
- The specialist bank continued to operate effectively through COVID-19
- 98% of employees moved to remote working within days and no staff furloughed
- Successfully achieved accreditation under UK Government’s CBILS
- Continued investment in technology to digitalise the business
- Shawbrook “cautiously optimistic” as momentum begins to return to certain specialist sectors
Shawbrook Bank has today (Monday 10 August 2020) published its half year financial results for the period ending 30 June 2020.
The specialist bank confirmed it had set aside £45.8 million of provisions to provide for potential future loan impairments caused by COVID-19. The bank reported it had also granted a total of 15.9k payment holidays to support its customers through the pandemic, of which 10.8k remained in force at 30 July 2020.
As a result of such provisions, the bank’s profitability was impacted with a reduction in PBT by 89% to £5.9 million.
Despite the challenging market conditions, the bank retained its active position in the UK savings market, increasing its retail savings deposit base by 25% to £7.6 billion. During the period, Shawbrook also successfully completed a £75 million Tier 2 re-financing to further optimise its capital structure.
Ian Cowie, Shawbrook Bank’s Chief Executive Officer, said that COVID-19 has had a clear impact on the bank’s financial performance, but Shawbrook remained in a position of strength.
He commented: “Prior to COVID-19, the Group had continued to make good financial progress, starting 2020 with a strong balance sheet and prudently positioned capital and liquidity base.
“To further optimise the Group’s capital structure, during H1 2020 we initiated a Tier 2 refinancing and, despite the challenging market conditions, successfully completed the £75 million issuance in July.
“We have also maintained our active position in the UK savings market. However, the longer-term economic impacts of the pandemic remain hard to predict and as a result we have recognised expected credit loss charges in the period on loans and advances to customers of £45.8 million and on loan commitments of £1.5 million.
“While this has clearly had an impact on profitability, our capital strength positions us well to support our customers and grow our business in line with appetite as we enter the second half of the year.”
Throughout COVID-19, Shawbrook maintained full operational functionality, with no staff furloughed and 98% of employees transferred to remote working within days of the UK lockdown being announced.
The bank adopted a series of concession opportunities across its product range to help alleviate the financial impacts of COVID-19 on its customers. During this time, Shawbrook also successfully achieved accreditation to the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) to provide further funding support to its SME clients.
Mr Cowie added: “Since the outbreak of COVID-19, our focus has remained on supporting our staff, customers and partners while at the same time safeguarding the long-term sustainability of our business.
“When the UK lockdown was announced in March 2020, we acted with speed and agility, moving to an almost entirely remote operation within days. Led by a stable and experienced management team and with the support of new and existing technology, we have continued to operate effectively throughout this period.”
Throughout the first half of the year, the bank also continued to identify investment opportunities to further digitalise its proposition, with a core focus on its SME offering.
Mr. Cowie added: “Notwithstanding the pandemic, we have continued to invest in our business to help drive our strategic ambition to become the UK’s Specialist SME Lender of Choice. As well as the ongoing deployment of targeted digital solutions across the Property, Consumer lending and Savings businesses, our investment in the development of a new growth platform in our Business Finance franchise will serve to further modernise our offering, delivering an enhanced customer journey as well as significant operational efficiencies.”
Looking to the future he continued: “Although significant uncertainties regarding the broader macroeconomic impact and pace of recovery remain, we are cautiously optimistic in our outlook as we start to see signs of momentum returning to certain of our specialist sectors.
“Our management expertise and prudent approach to credit decisioning, combined with investment in our digital propositions, means we are well positioned to adapt and respond to opportunities as they arise throughout the second half of the year.”
Better banking—everyday in everyway
By Bruno Pešec president at Pesec Global.
Some of the most innovative companies are also great at continuous and incremental improvement. I want to talk about three key points when it comes to succeeding with implementation of continuous improvement.
First is acknowledging that employee empowerment is at the heart of continuous improvement. The second is striving for total involvement by everybody, everywhere, everyday. Final, third point is that improvement is improvement. Cents turn into dollars.
Let’s expand on each.
Employee empowerment is at the heart of continuous improvement
In “Kaizen: The Key To Japan’s Competitive Success” Masaaki Imai divulges following as the core principles of continuous improvement:
- Process orientation. “Before results can be improved, processes must be improved, as opposed to result-orientation where outcomes are all that counts.”
- Improving and maintaining standards. “Lasting improvements can only be achieved if innovations are combined with an ongoing effort to maintain and improve standard performance levels.”
- People orientation. “Improvement is people-oriented and should involve everyone in the organization from top management to workers at the shop floor. Further more, it is based on a belief in people’s inherent desire for quality and worth, and management has to believe that it is going to “pay” in the long run.”
These principles are interlinked and interdependent. Without empowered people there can be no improvement. Micromanaging and overbearing bureaucracy stifle human creativity and desire to do better.
Due to the nature of my work I have residence in two countries, Croatia and Norway. Consequently, I have bank accounts in both as well. On one occasion I was had to make a bank transfer while in Croatia, and went to my local bank office to do so.
To my surprise they requested my debit card. I explained that I’ve forgotten it, but surely that shouldn’t be a problem as I’m here in person, have my national ID as well as passport, and cash required for transfer. The bank teller explained that he can ask branch manager to approve it, but it takes seven days.
Since the manager was right there, I asked why can’t we do it right now, since we are all here. “Sorry, such are the policy and procedures. I know it doesn’t make sense, but we must follow them.”
Banking is a highly regulated industry; fraud detection and anti-money laundering processes must be impeccable; but above is neither.
Everybody, everywhere, everyday
Bottom up is usually brought up when discussing implementations of continuous improvement. While it is true that those closest to work are most suitable to improve it, they often lack decision making power and budget to do so on a scale.
That’s why “everybody, everywhere, everyday” is a better mental model. No one is absolved of improvements. At any given moment there are at least hundred things you can improve right now, right here.
Think deeply about following:
- Everybody in the organisation should be aware and have an understanding of organization’s strategy and objectives. There’s shouldn’t be multiple interpretations, and it should be unambiguous. Without clarity improvement efforts are going to be scattered and without impact.
- No elitism, no absolution. Everybody should be actively committed to daily improvement, regardless of their rank or seniority. Leaders should be especially cognizant of leading by example. After all, how can they demand from others what they themselves are not doing. That’s hypocrisy at its finest.
- To improve is to learn, and to learn is to improve. Unlock even more value from your continuous improvement efforts by capturing the learning and sharing it broadly and deeply within the organisation. Ideas spawn ideas, perpetuating a virtuous cycle. Peer learning is also a powerful intrinsic driver.
Improvement is improvement
Director of one European bank invited me to their customer service centre, and we were to discuss how could they innovate better. After the meeting I asked him to take me on the walk around the office so I can observe the processes. He was more than happy to oblige.
The walls were plastered with wallpapers and dashboard, colourful metrics were displayed one the hanging screens, and there was a special area dedicated to the “Hall of fame.” Much to my delight there was a wall dedicated to the improvement ideas.
It was covered with large sticky notes, each with few sentences about the problem and potential solution. I picked a few at random, and noticed that they have dates written in bottom left corner. All of the dates were months ago.
Perplexed, I asked the nearby call operator to illuminate me. What’s going on? She fired her response like she was just waiting for someone to ask her that question:
“After each call we used to write down some improvement ideas. At the end of the week we collated and submitted them to the improvement department. They were constantly rejecting our proposals for either being too small or not innovative enough. After few weeks we stopped sharing and tried to implement what we can. That resulted in one of us being scolded for taking initiative without approval, so we just stopped altogether.”
Director was blushing, but hasn’t said anything. I thanked the operator for her honesty, and told the director that he should find time to fix this. By ignoring small, incremental improvements, they are effectively atrophying their organisational muscles. And not to mention all the savings that are left behind, lost forever. Cents turn into dollars.
I’ve talked about three key points in regards to the role of employee empowerment in the implementation of continuous improvement, and what you can do to use them well. Let me remind you that if you really want to engage in this, the first thing to do is take any of them and start today.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).
As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.
Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.
Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.
“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.
Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”
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