The Impact of Interest-Paying Checking Accounts on MMDA Popularity

C

The correct answer is C. A rise in monthly bank charges, which can easily amount to more than the interest earned on all but the highest account balances.

Money market deposit accounts (MMDAs) are a type of savings account that typically offer higher interest rates than traditional savings accounts. They are federally insured, which means that the money deposited in them is protected by the government up to a certain amount.

MMDAs are similar to money market mutual funds, which are investment funds that invest in short-term, low-risk securities such as government bonds and certificates of deposit. Money market mutual funds are not federally insured and are not considered deposit accounts, but they often offer higher returns than MMDAs.

One of the advantages of MMDAs is that they offer check-writing privileges or ATM access, which makes them more convenient than some other types of savings accounts. This convenience has made them increasingly popular, especially as interest rates have remained low in recent years.

However, the growing popularity of MMDAs has also led to a rise in monthly bank charges. These charges can offset the interest earned on lower balances, which can be a problem for customers with smaller account balances. In some cases, the monthly charges may even exceed the amount of interest earned on the account, making it difficult for customers to see any benefit from keeping their money in an MMDA.

Option A, which suggests a slump in monthly bank charges, is incorrect because it contradicts the premise that charges have risen due to the popularity of MMDAs. Option B, which suggests a fall in monthly bank charges, is also incorrect for the same reason.

Option D, which suggests a rise in monthly bank charges that is less than the interest earned on all but the highest account balances, is incorrect because it implies that customers with lower balances would still benefit from keeping their money in an MMDA. In reality, the charges may be high enough to offset any interest earned on smaller balances, making MMDAs less attractive to some customers.