A money market account (MMA) is a type of savings account that combines the best features of both checking accounts and regular savings accounts. With money market accounts, you can access your savings through checks and debit cards while typically also earning a higher interest rate than you would with most standard savings accounts. Currently, the average annual percentage yield (APY) for an MMA is below 1.00%, but you can find accounts with much higher rates.
Latest money market account rates
If you have at least $10,000 to stash in a money market account, you could get an average APY of 0.59%, according to Curinos data. This is higher than last week. The highest rate available is 5.12%, the same as last week.
If you invested $10,000 into an MMA for a year, with a 5.12% APY that compounds daily, you’d earn $524.19 in interest.
If you invested $10,000 into an MMA for a year, with a 0.59% APY that compounds daily, you’d earn $66.20 in interest.
What are money market accounts?
Money market accounts are like other bank savings accounts but with one important difference: They let you access the money using checks or debit cards. That sets money market accounts apart from regular savings accounts and certificates of deposit (CDs), neither of which give you check-writing privileges.
In this respect, money market accounts are similar to checking accounts, except that you’re likely to get a much higher interest rate with a money market account than you would with a checking account that pays interest.
The rates you get on a money market account depend on the bank. Some offer rates close to or below the national average, which was 0.60% as of May 14, 2024, according to Curinos. But some banks offer the best money market rates, which are above 5.00%.
How do money market rates work?
With money market accounts, you’re paid interest on your deposits that might be compounded daily, monthly, quarterly or yearly. Rates are reflected in a bank’s annual percentage yield, which determines the amount of your return. For example, if you make a $1,000 deposit in an account that pays a 4.00% APY compounded yearly, you’ll earn $40 in interest if you don’t make any additional deposits.
What factors influence money market account rates?
One of the factors that influences money market account rates is the broader interest-rate environment. When market rates are high, savings account rates tend to go up as well, including money market accounts. When market rates head lower, so do money market rates.
But banks have the biggest impact because they set rates based on their own business model. If a bank gets a lot of its business from deposit accounts, it needs to offer competitive money market rates to draw more customers. On the other hand, banks that don’t rely as heavily on deposit accounts can get by offering lower rates.
Benefits and drawbacks of money market accounts
The main benefit of a money market account is that you have check writing privileges that you typically don’t have with other savings accounts. You can also use your debit card to make purchases from your money market account. Beyond that, money market accounts typically pay higher APYs than standard savings accounts and interest-bearing checking accounts. And unlike certificates of deposit, your money isn’t locked up for a set term with a money market account.
But money market accounts have drawbacks as well. Some accounts limit the number of monthly transfers and withdrawals you can make. You might also have to pay monthly maintenance fees, transfer fees, ATM fees, or fees for exceeding transaction limits. Another potential drawback is that you could get a bigger return on your money with another kind of investment, such as a stock or mutual fund.
Steps to open a money market account
Before opening a money market account, make sure you find the right one by comparing interest rates, fees and minimum balance requirements. You should also find out how accessible the accounts are through checks, transfers and debit cards.
The process of opening an account varies from one bank to the next, but most allow you to do so online or through a branch. You’ll likely be asked to provide personal information such as your full name, address, birthdate, Social Security number and government ID such as a driver’s license or passport. In some cases, you might also be required to make an opening deposit.
Money market accounts vs. other investment options
Because money market accounts are bank savings accounts, the most comparable options are standard savings accounts and certificates of deposit (CDs).
Money market accounts offer a safe, predictable return because you earn interest at financial institutions backed by the FDIC or NCUA. Money market accounts also offer liquidity and accessibility you might not find in other investments. Stocks and mutual funds could provide higher returns over the long term — but they carry more risk. Real estate investments carry more risk as well and often require large monetary investments.
Role of Federal Reserve in money market account rates
The Fed’s primary role in money market account rates is its policy on interest rate hikes. When the central bank hikes rates, banks typically raise their own rates on money market and other savings accounts. When the Fed lowers rates, your money market annual percentage yield might go down as well.
It helps to track how the Fed signals future rate moves. If the Fed is likely to lower rates, you should consider getting a money market account before market rates go down. Similarly, if the Fed is expected to raise rates you might want to hold off until they are higher.
Impacts of inflation on money market account rates
When inflation rates are high, you can expect money market and other savings rates also to move higher. This is mainly because the Fed often hikes rates during periods of high inflation as a way of easing inflation — as it did beginning in 2022 when the U.S. inflation rate hit a four-decade high. Once inflation goes low enough to hit the Fed’s target range, the central bank will cut interest rates. Banks typically respond by cutting their money market rates.
Other savings accounts and options
The primary bank alternatives to money market accounts are checking accounts, standard savings accounts and CDs. Checking accounts have no withdrawal limits but pay lower interest rates if they pay them at all. Standard savings accounts also tend to offer lower rates than money market accounts — except for high-yield savings accounts. However, high-yield accounts don’t let you access the money via checks or debit cards.
With CDs, your money is locked up for a set term. If you withdraw money before the CD’s maturity date, you’ll face an early withdrawal penalty.
Frequently asked questions (FAQs)
The main driver of rate changes is Federal Reserve policy. When the Fed raises or lowers rates, you can expect money market accounts to follow suit.
Money market accounts are typically a safe investment because deposits are insured by the FDIC or NCUA.
The two biggest benefits are your ability to write checks on your balance and the higher interest rates you get vs. standard savings accounts.
Keep an eye on Fed policy. If the central bank is expected to raise its rates, then you can anticipate a rise in money market rates. In this case, you might want to wait for rates to go up before opening a money market account.
