The Federal Regulations of Money Market Accounts

There are important federal regulations that affect money market accounts. If you are researching money market accounts, it’s important to be aware of these regulations.

Classification of Money Market Accounts
The federal government classifies money market accounts as savings deposit accounts. There’s a key difference, however, between money market accounts and savings accounts. You are permitted to write checks from money market accounts. In fact, it’s even possible to own a debit card that is linked to a money market account. By contrast, banks place restrictions on transactions and checks written from savings accounts.
Banks specifically establish money market accounts in a manner similar to Negotiable Order of Withdrawal accounts (NOW accounts). This is done so that the bank can operate these accounts legally and not run afoul of the SEC’s Regulation Q. It also means that money market accounts can earn interest, like savings accounts can under the regulations set forth by Regulation D.

Regulation Q
In 1933, the United States government passed Regulation Q, an important securities and banking law. Regulation Q was enacted as a response to the over-speculation that contributed to the Great Depression. Regulation Q sets forth specific rules on how banks can pay interest on deposits. These stipulations prohibit demand deposit accounts from earning interest, but permit savings accounts to earn interest.

Regulation D
In 1933, the Securities and Exchange Commission also set forth Regulation D. Regulation D effectively sets rules for how banks must respond to excessive transaction activity on money market accounts. Regulation D also requires banks to set a withdrawal limit to money market accounts. If an account holder exceeds the minimum withdrawals on the money market account, the bank is clearly instructed to either move the funds to a non-interest bearing account, or close the account that violates the transaction limits set forth by Regulation D.

Reserve Requirements and Limits
There are also reserve requirements, which establish rules for how often an account holder can withdraw funds from money market accounts or savings accounts. The general rule prohibits account holders from making more than six withdrawals per month from money market accounts.

Reserve requirements also apply to bill transfers and automated payments. In other words, these do count towards the withdrawal limit. However, the regulations have made certain transactions exempt. Bank guidelines will inform as to which types of withdrawals receive exemptions.

Transfers and deposits made in person are not restricted to any number. So, account holders of money market accounts can continue to deposit funds into the account (or transfer money out of it.)
The transactions affected by the limit include checks written on the account, debit card purchases, and Point of Sale transactions. Automatic transfers are subject to the limit.

It’s important to be aware of the government’s regulations regarding money market accounts. Maximizing interest rates on MMAs is the goal of most investors, and playing by the rules will help you keep a strong balance in your account so that you can take advantage of great interest rates on your money market account.

This article was provided to you by Ratelines.com, a financial portal of reliable information on finding the best cd rates and money market rates.