Money Market Check Writing

Money Market Check Writing
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The money market comprises short-term debt instruments such as Treasury bills, short-term certificates of deposit and commercial paper. Banks and credit unions offer FDIC-insured money market accounts (not money market funds offered by brokerage accounts) with variable interest rates that usually exceed the rates paid by traditional savings accounts. You can write checks from these types of accounts, but restrictions may apply.

Know Your Bank’s Check-Writing Limits

In 2020, the Federal Reserve suspended Regulation D, which limited deposit account holders to just ​six​ convenient withdrawals (i.e., check writing, debit card transactions and transfers, but not teller or ATM withdrawals) per monthly statement cycle.

But many financial institutions have retained some check-writing limits on savings and money market accounts. A recent survey by Bankrate found that ​46 out of 69​ banks still imposed limits on the number of checks allowed per cycle. Some banks preserved the six-check limit, some adopted a different number, and some removed all limits. Typically, banks charge a small fee (e.g., ​$2 to $15​) when you exceed the monthly transaction limit.

Understand Other Money Market Account Limits

Banks may require you to maintain a minimum balance in your money market account. Often, these accounts specify different interest rate tiers, depending on the fund balance.

Minimum balance requirements may impact the check amounts you write. For example, you might need to keep a minimum deposit of ​$10,000​ in the account to receive a higher rate of interest. Or, a bank may offer a fee-free money market account if you maintain an average daily balance of ​$2,500​ but charge a ​$12​ monthly fee if you fall short.

Often, consumers maintain multiple accounts at a bank such as checking, credit card and savings/money market accounts. If you use a money market account to cover overdrafts from another bank account automatically, each transfer will count against the bank’s monthly limit (if any).

Optimize Your Accounts

Knowing how to manage all your accounts is essential to maintaining control of your personal finances. In this regard, consider the certain factors relating to a money market account.

  • Avoid possible confusion​: It can complicate your efforts to stay on top of your money when you write checks from multiple accounts. You will need to track and reconcile each account separately. Writing checks from multiple accounts means you’ll need to spend more time maintaining accurate records and ensuring you maintain minimum balances.
  • Protect your investments​: An FDIC-insured money market account earns interest and is, therefore, part of your overall investment portfolio. Writing checks from it sends your balance yoyoing around, interfering with your expected return. The earnings picture is further complicated if check writing reduces your account balance enough to cut your annual percentage yield (APY). You might even lose money if you incur fees for too many withdrawals.
  • Interest-bearing checking may be a better solution​: There are no limits on the number of checks you can write from a checking account. Moreover, some checking accounts, especially from online banks, pay interest and/or waive fees if you meet specific requirements (i.e., minimum balances, direct deposit volume, etc.). Using a checking account for all your check writing allows your money market account funds to grow undisturbed, accruing the maximum benefit from compound interest. You may appreciate that if you suddenly need emergency funds.
  • Beware of lockup​: How strictly does your bank enforce check-writing limits on your money market account? Will it refuse to honor the checks you write that exceed the monthly limit? Be sure you understand your bank’s rules, lest you risk havoc the first time a check from your money market account bounces because you exceeded the limit.

Occasionally writing a check from your money market account may be a good strategy, especially if you’ve been saving for a big-ticket purchase. But if you consider your money market account as a low-risk investment, understand that writing many checks from it can introduce risks, from bookkeeping mistakes to compromised earnings.