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.
European shares end higher on strong earnings, positive data
By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)
ECB plans closer scrutiny of bank boards
FRANKFURT (Reuters) – The European Central Bank plans to increase scrutiny of bank board directors and will take look more closely at diversity within management bodies, ECB supervisor Edouard Fernandez-Bollo said on Friday.
The ECB already examines the suitability of board candidates in a so-called fit and proper assessment, but rules across the 19 euro zone members vary, so the quality of these checks can be inconsistent.
The ECB plans to ask banks to undertake a suitability assessment before making appointments, and they will put greater emphasis on the candidates’ previous positions and the bank’s specific needs, Fernandez-Bollo said in a speech.
The supervisor also plans more detailed rules on how it will reassess board members once new information emerges, particularly in case of breaches related to anti-money laundering and financing of terrorism, Fernandez-Bollo added.
Fernandez-Bollo did not talk about enforcing diversity quotas, but he argued that diversity, including diversity in gender, backgrounds and experiences, improves efficiency and was thus crucial.
“Supervisors will consider furthermore all of the diversity-related aspects that are most relevant to enhancing the individual and collective leadership of boards,” he said.
“Diversity within a management body is therefore crucial … there is a lot of room for improvement in this area in European banks,” he said.
(Reporting by Balazs Koranyi, editing by Larry King)
Where are we with Open Banking, and should we be going further?
By Mitchel Lenson, Non-Executive Chairman, Exizent
Open Banking has the power to revolutionise the way we manage our money, but most (65%) consumers are still not aware of it, while many financial institutions continue to treat it as an obligation rather than an opportunity.
For Open Banking to truly reach its potential, consumers need to have more trust in its benefits. However, this will only happen if banks and other financial institutions start to embrace it, rather than simply accept it.
Covid-19 has proven to banks that digital banking and open finance innovation is not simply a ‘nice to have’. It is vital for their own survival. With so many challenger banks now coming into the market, many of whom have entirely digital models and therefore invest heavily in technology, banks are starting to become aware that if they don’t embrace it, they’ll get left behind.
So, fuelled by a mixture of competition and Covid-19, banks are starting to realise that Open Banking is not about giving away valuable data, but it is about collaborating with third party fintechs to explore the endless opportunities data sharing can bring – to all sides.
By making open finance easier for developers, banks can not only save time and money by improving their own services but help create useful solutions that add real value for their customers.
Open Banking for all?
There is one, yet untapped area of consumer finance that could be immeasurably improved by Open Banking, and that is estate administration.
Recent research from Which? found that many executors contend with delays, errors and poor knowledge from their banks during the probate process. Our own research shows that most legal professionals admit the process does not work as it should, and the time it takes to complete probate is unacceptable.
Like the Which? survey, we found that the main issue is the administration involved, with most legal professionals saying that the time it takes for financial institutions to get back to them with the information they need is the main cause of delays.
Given that the system is not working for consumers, something clearly needs to be done. The good news is that the technology and data is already available – we just need to harness it to create a better system.
That is why we are developing the first ever platform to connect executors, legal professionals, and financial institutions to create a better, quicker, and more secure probate experience for everyone.
Our first release of the platform – a bespoke cloud-based solution to enable legal services firms to integrate directly with financial institutions making information gathering and processing more straightforward – was released in 2020. We are now building on that foundation to accelerate our development work with financial institutions to deliver additional value for all sides.
We also see huge potential in working with banks to utilise the digital financial infrastructure, powered by Open Banking, to improve things even further. But there is one, fairly sizeable issue – currently, Open Banking consent ceases at the point of death.
Is it time for legislative change?
Open Banking is not as open as is should be for those who can give consent, so we are certainly some way off from Open Banking for the deceased. However, the more that banks acknowledge Open Banking and its potential and are prepared to collaborate with third party fintechs to develop better experiences for consumers, the more likely we are to get to a point where we can tap into that potential to improve things for the bereaved.
Many of the problems – highlighted by Which? – that consumers face when managing someone’s estate could be reduced significantly if open finance continued to apply to the deceased.
Open Banking provides a huge opportunity to speed-up and reduce friction for loved ones faced at some of the hardest moments of their lives, and there is a strong argument here for the current position to be reviewed to enable better access to a deceased person’s assets.
With our current platform, we are showing how technology is playing an incredibly significant role in dealing with the complex, tangled process that is probate and the potential of open finance in radically enhancing what we are already doing cannot be understated.
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