Investors attempt to increase returns by putting their money in money market accounts

In an attempt to increase the returns investors are putting their money in the money market accounts.  These money market accounts seem attractive due to the competitive rates they offer and also due to the FDIC cover they have.  The interest rates are much better than that offered in a traditional savings account.  This is also in combination with the accessibility to money although limited, but is more like a checking account.  But money market accounts are not checking accounts and there should be no confusion over that.

The classification of the money market bank accounts as per the Federal Reserve is that it is a savings deposit account even though you could write checks from the money market account.  It is subject to Regulation D.  It was set up through financial institutions with the provision of the ‘negotiable order of withdrawal’ accounts to produce some sort of a hybrid which could help in attracting savers because of the flexibility of the account which also earns a high interest rate.

As per the Regulation D, though money market accounts are classified as savings accounts, there are restrictions to the number of withdrawals you are allowed to make in a month.  Only six withdrawals are permitted each month from these money market accounts.  Although six withdrawals are the maximum allowed, banks can restrict you to even three or four withdrawals.  If there are more than six withdrawals within a month, as per the regulations, the money needs to be moved to another account which does not carry the interest or the account needs to be closed.  If these rules are violated, some credit unions as well as banks might impose a lower withdrawal limit where they will charge hefty fees on violations.

In money market accounts you are allowed to write a limited number of checks and this helps in creating easy accessibility to your money.  Some accounts might have a debit card facility also, but you will have to be careful while using it.  The transactions on the debit cards also come under the Regulation D limits. If two purchases are made with the debit card and four checks are written, then you would have finished your limit for the month.  If your bank has imposed lower limits then you will exhaust the chances much faster and you will additionally charged a fee.