A Money Market Deposit Account (MMDA) and a Negotiable Order of Withdrawal (NOW) account are both types of interest-bearing bank accounts; however, they each have distinct features that cater to different financial needs.
First, the primary difference lies in the structure of the accounts. An MMDA typically offers higher interest rates compared to a NOW account and usually comes with a higher minimum balance requirement. This makes MMDA a more attractive option for individuals looking to earn more on their savings without requiring daily access to their funds.
Additionally, MMDA accounts often have limited transaction capabilities; for example, federal regulations may limit certain types of withdrawals or transfers to six per statement cycle. On the other hand, NOW accounts are designed to allow easier access to funds with fewer restrictions on transactions. However, NOW accounts also usually provide slightly lower interest rates.
So, when might a depositor choose an MMDA? An MMDA can be a great choice for someone who wants to set aside money for a short to medium-term goal and earn a better return than what a regular savings account offers. For instance, if someone is saving for a vacation or a home down payment and can keep the funds untouched for a period, the higher interest rate of an MMDA would be beneficial. Also, those who can meet the minimum balance requirements and don’t need immediate access to their funds might prefer an MMDA for its potential higher returns.