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 0.60%, according to Curinos data. This is higher than last week. The highest rate available is 5.13%, higher than last week.
If you invested $10,000 into an MMA for a year, with a 5.13% APY that compounds daily, you’d earn $525.24 in interest.
If you invested $10,000 into an MMA for a year, with a 0.60% APY that compounds daily, you’d earn $68.21 in interest.
Understanding money market account rates
The rates you earn on a money market account largely depend on two things: the bank’s determination of what it should offer, and the broader interest rate environment, which is heavily influenced by Federal Reserve policy. The average money market rate as of May 30, 2024, was 0.61%, according to Curinos. However, the best money market rates in May 2024 were above 5.00%.
Factors influencing money market account rates
Banks and credit unions set their own money market rates based on external market conditions and their own internal financial metrics. Much of it depends on what banks value. Banks that need to build up their savings deposits may offer higher rates to draw more customers. But banks that already have plenty of business through other products and services are less inclined to offer high money market rates.
Online banks often have higher interest rates than brick-and-mortar banks because they have lower overhead costs.
Typically, banks that offer lower-than-average rates on other savings accounts will also offer below-average rates on money market accounts. It also goes the other way — when a bank offers a competitive rate on regular savings accounts, you can expect it to do the same with money market accounts.
Regardless of the bank, money market rates tend to move higher when the Fed hikes its rates and lower when it cuts rates.
Benefits of money market accounts
The biggest advantage of a money market account is that you can spend or withdraw money using checks or debit cards — something you typically can’t do with other types of savings accounts. Another benefit is that your money is protected by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) as long as your financial institution is federally insured, which you don’t have with stocks and other investments.
Here are a couple of other advantages:
- You’re likely to get higher APYs with a money market account than with a standard savings or interest-bearing checking account
- Unlike a CD, your money isn’t locked into a set term with a money market account so there are no early withdrawal penalties.
Drawbacks of money market accounts
There aren’t a lot of drawbacks to money market accounts when compared with other bank savings products. Like all accounts, you could face limits on monthly transfers and withdrawals as well as minimum deposit and balance requirements. Some money market accounts charge monthly maintenance fees, ATM fees, transfer fees or inactive account fees.
The main drawback with a money market account is that the return you get could be pretty low unless you shop around for the highest APY. Putting your funds into a money market account that pays a 0.05% APY means your money could lose value if you factor inflation into the mix.
The process of opening a money market account
Opening a money market account is pretty much the same as opening any other type of bank account. You’ll need to provide certain information to confirm your identity, including:
- Government-issued photo ID such as a driver’s license or passport.
- Social Security number or tax identification number.
- Documentation of proof of address such as a utility bill or lease agreement.
- You might also need to make an opening deposit, depending on the bank.
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.
Alternatives to money market accounts
In terms of bank accounts, the main alternatives to money market accounts are checking accounts, standard savings accounts and CDs. Checking accounts hold very little advantage over money market accounts unless they pay interest — and you’ll almost always get a higher APY with a money market account.
Similarly, money market accounts usually offer higher APYs than standard savings accounts. The exceptions are high-yield savings accounts, but they don’t let you access the money via checks or debit cards like money market accounts.
Some CDs offer higher rates than the typical money market account, but your money is also locked in until the end of the term. If you withdraw money before the CD’s maturity date, you’ll face an early withdrawal penalty.
Frequently asked questions (FAQs)
It depends on the bank. As a general rule, banks can raise or lower money market account rates at their discretion. Keeping track of the broader rate environment will give you an idea if your money market rate is likely to go up or down.
During periods of high inflation the Federal Reserve often raises rates, which means money market rates also move higher. When inflation slows down the Fed might cut its rates, leading to lower money market APYs.
There’s nothing stopping you from trying to negotiate a better rate with your bank. But unless it’s a small bank you have a longstanding relationship with, you’re unlikely to succeed.
Because nearly all banks and credit have FDIC or NCUA protection, your deposits are federally insured up to $250,000. This means you can’t lose money unless you have more than $250,000 in your account or the account is not federally insured.
