- Money market rates rise and fall frequently — driven by changes in the Fed’s interest rate, the economy in general and competition between institutions.
- A money market account pays out by combining a variable interest rate with compounding interest.
- To find the best money market rates, you will need to compare offers from different banks and even different accounts at the same bank.
- Money market rates can vary between national banks, online banks, credit unions and local banks.
Top Money Market Accounts With High Rates
Money market account rates fluctuate with changes made by the U.S. Federal Reserve to the benchmark interest rate. They can also change from day to day.
When the Fed raises the benchmark interest rate, money market rates tend to follow with increases of their own. And when the Fed lowers interest rates, money market rates tend to lower as well.
But individual banks and credit unions do not follow in lockstep. Instead, they adjust rates competitively to lure depositors.
According to the FDIC, the Fed sets caps on money market interest rates to limit “less than well capitalized” institutions from seeking deposits by offering rates that exceed the current interest rates in the market.
Money Market Account Rates
- 4.83% Treasury Yield
- 0.57% National Deposit Rate
- 1.32% National Deposit Rates Rate Cap Adjusted
- 5.58% National Rate Cap
- 5.58% Treasury Yield Rate Cap Adjusted
How Do Money Market Accounts Pay Out?
Money market accounts pay out by combining a variable interest rate with compounding interest.
Institutions may require a minimum balance or have tiered interest rates based on how much of a balance you keep in your account. The interest you earn is also considered taxable income by the IRS.
- Variable Interest Rates
- Money market accounts have variable interest rates — meaning they fluctuate over time in response to changes in the market. The rate you get when you open the account can rise or fall.
- Tiered Interest Rates
- Money market accounts may feature tiered rates. This means, the more money you keep in the account, the higher the interest rate you earn. If you draw down your money, you earn lower interest on your account.
- Compounding Interest
- Compound interest allows you to earn interest on your interest. Typically, money market accounts will compound your interest daily and pay you monthly. That means the institution determines how much interest you earn each day. It then adds that interest to your account once a month and you begin earning interest on that once it’s paid.
- Minimum Balance Requirements
- Some money market accounts may require a minimum balance to earn interest. Falling below this balance may result in a lower interest rate or fees.
- Tax Implications
- Money market account interest is generally taxable as income. This may affect the account holder’s overall earnings.
Money Market Account Interest Structure
Money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) if the account is in a bank. They are insured by the National Credit Union Administration (NCUA) if the account is in a credit union.
A money market account is different from a money market fund — or money market mutual fund. Money market funds are offered through investment companies or brokers. Money market funds, unlike money market accounts, are not FDIC- or NCUA-insured, according to the U.S. Consumer Financial Protection Bureau.
Where To Find the Best Money Market Rates
To find the best money market rates, you’ll need to compare different accounts from different types of banks. You’ll also want to look at fees and any requirements for minimum balances. These can significantly affect the return on your savings.
Money market rates can vary between national banks, online banks, credit unions and local banks. Usually, the rates offered by online banks and credit unions tend to be higher than those offered by national and local banks.
National Banks and Money Market Rates
National banks are those which have a significant presence across the country. Some of the largest national banks include Bank of America, JPMorgan Chase and Wells Fargo.
They typically offer lower rates than online banks and credit unions because of the high overhead cost required to maintain a nationwide banking network. But national banks may also offer other benefits, such as access to a large network of ATMs and branches.
Online banks typically have lower overhead costs. They can pass on these savings to their customers in the form of higher interest rates, according to Experian. They often offer some of the most competitive rates in the market.
Online banks offer the same types of products and services as brick-and-mortar banks — but they don’t have physical branches. You may sacrifice convenience or interaction with in-person customer service in exchange for higher rates.
Some of the largest online banks include Capital One, Discover Bank, Ally and Axos.
Credit unions typically offer higher interest rates on savings accounts than brick-and-mortar banks, according to the NCUA.
Credit unions are not-for-profit, member-owned organizations. Because they are not focused on making a profit, credit unions may also offer higher rates than national or local banks.
Local banks include minority-owned financial institutions, community banks and community development financial institution funds (CDFIs).
They may offer personalized service and a strong community focus. But their rates may be lower than those offered by online banks and credit unions. They may also offer fewer services and financial products than other options.
Despite the lower rates, you may prefer to bank with an institution that works within your community. You may also prefer the convenience of a branch bank and ATM network that comes with local banking.
Read More: Banks vs Credit Unions
Comparing Money Market Accounts and Other Financial Options
While higher interest rates are the most prominent selling point for money market accounts and other savings products, look beyond rates when considering which money market account best suits your needs. You may also consider savings alternatives such as CDs, high-yield savings accounts or traditional savings accounts.
- Minimum Balance and Tiered Interest Rates
- The advertised interest rate may be for higher balances. Consider how much of a minimum deposit you want to keep, then check the rate for that amount and compare it with other money market accounts you’re considering.
- Be aware of all fees you may have to pay. Monthly maintenance and other fees may cost you more than you’ll earn in interest. You may also have to pay a minimum balance fee if your balance falls below a certain amount.
- Minimum Initial Deposit
- Some money market accounts require a minimum first deposit to open an account. If it’s higher than you want to make, you may want to consider another account.
- Withdrawal Limits
- You may be limited to just a few withdrawals every month. If you need more access to your money, you may want to consider a checking or some other type of savings account.
- Make sure the institution is FDIC- or NCUA-insured. This will let you recover your savings if the institution fails.
Money Market Features To Compare
Alternatives to Money Market Accounts
Traditional or high-yield savings accounts and certificates of deposit (CDs) allow you to earn interest, but an alternative may have specific qualities and rates that better address your savings goals.
- Traditional Savings Accounts
- Traditional savings accounts are typically available through brick-and-mortar banks. They tend to have much lower interest rates than money market accounts. But traditional savings accounts may require lower minimum initial deposits or minimum balances that also come with many money market accounts.
- High-Yield Savings Accounts
- High-yield savings accounts are mainly available through online banks and credit unions. They offer substantially higher savings than traditional savings accounts. High-yield savings accounts also tend to offer higher rates than money market accounts. Money market accounts tend to provide easier access to your money through direct checking or ATM withdrawals.
- Certificates of Deposit (CDs)
- CDs tend to have higher interest rates than money market accounts. But you must leave your money in the CD until it matures — usually between three months and five years. There is a penalty for early withdrawal. A money market account will give you easier access to your money if you need it right away.
Comparing Money Market Account Alternatives
Read More: Money Market Accounts vs. Savings Accounts
Frequently Asked Questions About Money Market Accounts
You can expect money market rates to change in response to the overall economy and the Fed’s changes to the benchmark interest rate. The Fed sets a new federal funds rate eight times a year in response to changes in the economy.
There may be limits on the number of withdrawals you can make and you may have to maintain a minimum balance to receive the best rates available for a money market account. The account may also have a tiered interest rate — meaning the lower your balance, the lower the interest rate you receive.
Money market accounts have variable interest rates. This means that the interest rate you receive will increase or decrease in response to changes in the Fed’s benchmark interest rate, competition in the market place and other changes in the wider economy.
Some banks may be willing to negotiate, but there’s no guarantee, according to online bank SoFi. Asking for a higher rate won’t hurt, but speaking with a manager rather than a customer representative may give you a better chance of a successful negotiation. You should also make sure you are being offered an actual higher rate and not a limited-time promotional rate.
Editor Malori Malone contributed to this article.