What Are Money Market Account Xtra (MMAX) Accounts?

A Money Market Account Xtra (MMAX) account is a type of money market bank account. It is popular among parties wishing to make large deposits while also benefiting from the insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC).

Whereas the FDIC typically only insures up to $250,000 per account, MMAX accounts can receive FDIC insurance for up to $5 million.

Understanding MMAX Accounts

MMAX accounts function by pooling together a network of participating financial institutions. Specifically, these accounts are administered by the Institutional Deposits Corporation (IDC), which oversees a network of participating banks. 

Through this network, the IDC can offer MMAX accounts in which the deposited funds are effectively placed in multiple accounts held at the participating financial institutions. Because each account is eligible for up to $250,000 in FDIC insurance, the MMAX account can combine multiple accounts to obtain total insurance coverage of up to $5 million.

Because MMAX accounts involve coordination among multiple participating institutions, MMAX account holders are restricted to no more than six withdrawals per month. In exchange, MMAX depositors benefit from the higher insurance limit while also enjoying interest income higher than most checking or savings accounts.

MMAX accounts are popular among institutional banking customers who wish to obtain higher yields than traditional bank accounts. Although the MMAX accounts do entail lower liquidity than a traditional money market account, they are still quite liquid compared to alternative holdings, such as corporate bonds.

Example of an MMAX Account

Emma is the owner of a large corporation. As a conservatively-minded operator, she is careful to maintain a large amount of liquid assets to help her company respond to any short-term liquidity needs. To that end, she keeps cash balances ranging between $500,000 and $1 million at her bank, XYZ Financial.

Although Emma may need to draw down the funds to deal with unanticipated capital expenditures (CAPEX) or other irregular items, she typically does not need to withdraw from her account more than a few times per month. Therefore, she is able to entertain banking options that offer slightly less liquidity than a typical bank account, in exchange for a moderately higher yield.

For these reasons, and because of her conservative outlook, Emma opts for a MMAX account instead of alternatives such as a traditional savings account or corporate bonds. Through the MMAX account, she is able to obtain FDIC insurance on her deposits up to a maximum of $5 million. By contrast, a typical bank account would only permit FDIC insurance up to $250,000. Moreover, the MMAX account allows up to six withdrawals per month as well as some check-writing ability. In exchange for the lower liquidity, the accounts offer a slightly higher yield than that of a savings account—although it is lower than most corporate bonds.

Special Considerations

Money market accounts are a type of interest-bearing bank account. They are typically viewed as an intermediary option between more liquid and lower-yielding instruments, such as traditional checking or savings accounts, and less liquid but higher-yielding options, such as corporate bonds or debentures.

To achieve this, money market account providers invest the deposited funds into securities, such as certificates of deposit (CDs); government debt instruments, such as municipal, state, or federal bonds; and commercial paper, which offers higher yields than those paid on most bank accounts.