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 the same as last week. The highest rate available is 5.13%, the same as 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 $67.21 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 0.61% as of June 25, 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.
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.
The Federal Reserve and money market account rates
The Federal Reserve plays a big role in all types of savings account rates, including money market accounts. Banks and credit unions tend to follow Fed policy. When that policy leads to higher interest rates, you can expect money market rates to move up. When the Fed lowers rates, your money market APY is likely to go down.
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 best money market rates in June 2024 were above 5.00%, though anything above 4.00% can be considered “good.”
Financial institutions set their rates based on prevailing market rates and their business model. If they don’t put a high value on consumer banking deposits, they’ll likely offer lower-than-average rates. Banks that do value these deposits may offer higher rates to attract more customers.
No, different banks offer different rates, and those differences can be substantial.
Yes, as a general rule, online banks offer higher rates because they have fewer costs cutting into their profit margins.
