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.
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 April 29, 2024, was 0.60%, according to Curinos. However, the best money market rates in April 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.
Pros and cons of money market accounts
Money market accounts are popular because of their flexibility compared with other types of savings accounts, but they aren’t always the best option. Here’s a look at some of the pros and cons.
Pros
- Higher average rates than standard savings and checking accounts
- Access to funds with checks or debit cards
- FDIC or NCUA insurance
- Money is not locked into a specific term like a CD
Cons
- Some accounts limit monthly transfers and withdrawals
- Minimum balance and deposit requirements might apply
- You might face different types of fees such as monthly maintenance fees, ATM fees, transfer fees, fees for exceeding transaction limits and inactive account fees
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.
How the Federal Reserve affects money market account rates
Federal Reserve policy is one of the main factors influencing money market accounts. When the Fed raises rates, you can expect banks to raise rates on money market and other savings accounts. It works the other way, too: When the Fed lowers its rates, banks tend to follow suit by lowering their own rates.
How inflation impacts money market account rates
The Fed also plays a role in the way inflation impacts money market rates. During periods of high inflation, the Fed raises its rates to help tame price increases. When inflation begins to ease, the central bank will usually hold rates steady and then gradually reduce them.
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)
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.
