How Does a Jumbo Money Market Work?

How Does a Jumbo Money Market Work?
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When it comes to saving and investing, it takes money to make money and the more cash you have, the more you can make. A money market account is a type of savings vehicle offered by banks and credit unions that is similar to a traditional savings account in that you gain interest over time on the funds you deposit. Jumbo MMAs are special money market accounts with high minimum balance requirements that can allow your savings to grow faster than run-of-the-mill accounts.

Jumbo MMA Basics

To open a normal money market account, you usually need to make an initial deposit of $1,000 or less. Jumbo money market accounts generally require a minimum deposit of $100,000, although the exact amount that constitutes a jumbo account varies from one bank to another. Banks typically limit you to making six withdrawals per month from money market accounts, although withdrawal restrictions may be even stricter on jumbo accounts.

Interest Rates

Jumbo MMAs tend to offer higher interest rates than accounts with lower minimum balance requirements. Higher interest rates give savers an incentive to choose jumbo MMAs over other accounts, which allows banks to attract larger deposits that they can lend to make profit. Interest rates can scale depending on your account balance. For instance, a company might let you open a jumbo MMA with a minimum deposit of $50,000, but offer better interest rates if you hold more than $100,000 in your account.

FDIC Insurance

The Federal Deposit Insurance Corporation insures deposit accounts like money markets, savings accounts and certificates of deposit at participating banks. FDIC insurance applies to balances up to $250,000. Federal insurance means that you can't lose funds in jumbo MMA even if your bank falls on hard times, unless your balance is more than $250,000.

Falling Below the Minimum

Since money market accounts allow you to make a limited number of withdrawals each month, it is possible to open a jumbo MMA and then fall below the required minimum balance later on after you tap into your cash. When the balance of a jumbo MMA drops below the required minimum, banks usually reduce the interest rate the account pays until the balance is brought back up above the minimum. In some cases, you may be penalized with a fee if your account balance drops below the minimum.