Despite the many advantages of an MMA, there are a few areas where it can come up short for some. Let’s look at the other side of the coin.
Withdrawal and transfer restrictions — The Federal Reserve places limits on withdrawal and transfer activities for both savings accounts and MMAs. The Fed generally considers these account types to be vehicles for savings, after all, and actively tries to discourage too much fund-draining from them.
It does this through its Regulation D, a rule that prohibits account holders from making more than six withdrawals and/or outgoing transfers per month. Any MMA holder that exceeds that limit is subject to a penalty fee from their bank or other financial institution.
That sounds restrictive and it can be, but it only covers certain types of withdrawals/transfers. These include:
- Electronic transfers
- Wire transfers
- Automated Clearing House (ACH) transfers
- Transfers by debit card
- Transfers by check
- Automatic or preauthorized transfers (such as bill payments arranged in advance)
Happily, other typical bank account transactions are not subject to this restriction. Falling under this category are such actions as:
- ATM withdrawals
- ATM transfers
- In-person transactions at a bank branch
Funding requirements — Compared to checking and savings accounts, MMAs tend to impose more demands on their holders, particularly in regard to starting and ongoing balances.
At first this might seem like an unfair burden. In fact, it’s quite reasonable.
Since the MMA pays higher interest relative to checking and savings accounts, those interest payments become meaningful only at higher dollar levels. On the banks’ side, such requirements attract and keep a sizable amount of funds for them to use for those short-term investments. On the customer’s side, they maintain a certain level of said meaningful interest payments.
These are two of the more prevalent requirements in MMA funding.
Opening deposit — In contrast to checking and savings accounts, MMAs often have a higher bar to clear with the account’s funding balance. It’s not uncommon for a bank to require an opening deposit well in the four figures to claim the advertised interest rate.
For example, a money market account may offer a 1.60% interest rate, but the account holder might have to open their account with at least $10,000 to earn the high rate. If the account is opened with less than that, the interest rate offered for the same account could be as low as 0.85%. (It’s worth noting that some companies allow account holders to catch up; once the account funds rise to the $10,000 threshold, the 1.60% rate kicks in.)
In some cases, if you can’t make an MMA’s minimum, you won’t be able to open it.
The opening deposit requirement can be quite high in certain corners of this market; generally speaking, the higher the interest paid, the higher the minimum opening deposit. This isn’t to say that low- or no-opening deposit minimum MMAs don’t exist, because they do. But it’s more common for there to be a baseline.
Minimum ongoing balance — Similarly, it’s typical for MMAs to mandate an ongoing balance minimum, often tracked daily. This can be a standalone requirement without a minimum deposit, or it could be in addition to that deposit. Penalties for dropping below the minimum balance vary by financial services provider.
As with the opening deposit, generally the higher the ongoing balance required, the higher the interest paid on the account.