Federal regulations are in place; that have repercussions with respect to money market accounts (MMAs). If you are looking into the possibility of investing in money market accounts, you should familiarize yourself with these regulations.

How Money Market Accounts are classified

A money market account is classified by the federal government as a savings account. There are of course some major differences between money market accounts and ordinary savings accounts. The first is that you can write checks against money market accounts, some banks even allow debit cards associated with money market accounts.

Money market accounts are set up much like Negotiable Order of Withdrawal accounts (NOW accounts). This is done to circumvent the SEC’s Regulation Q, which stipulates that demand deposit accounts such as checking accounts can’t earn interest. Regulation Q was enacted in 1933 as a reaction the great depression. Money market accounts can thus earn interest, provided they are compliant with Regulation D, which was also enacted post-depression. Regulation D stipulates that withdrawals from money market accounts need to be limited. Under this regulation, should excessive withdrawals be made, the money should be transferred to a non-interest earning account, or closed altogether.

Reserve requirements limit the withdrawals from money market accounts to six per month. These also apply to bill transfers, automated payments, and debit card and point of sale transactions, which means that such activities are counted as withdrawals. There are transactions that are exempted from this rule, you’ll need to discuss those with you bank. Deposits to and transfers out of the account are not restricted, provided the account holder does these in person.

The very fact that you are opting for a money market account instead of a savings or checking account or a combination of both, means you are looking to earn as much interest as you can. Knowing the rules that regulate MMAs should help you do just that.