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.
The basics of money market accounts
If you want easier access to your savings account funds — or a checking account that pays higher interest — then you are a prime candidate for a money market account. Money market accounts combine the best features of savings and checking accounts.
Like checking accounts, money market accounts let you use checks or debit cards to access funds. Like savings accounts, money market accounts pay interest on your deposits, though usually at higher rates. The average money market account paid interest of 0.60% as of May 6, 2024, , according to Curinos. In contrast, the average savings account paid . The best money market rates pay annual percentage yields of 5.00% or more.
How money market rates work
Like all savings accounts, money market accounts pay interest on your balance. The amount of that interest is largely up to the bank or credit union — and there can be wide gaps between the rates offered by different financial institutions. The interest you earn might be compounded daily, monthly, quarterly or yearly. Rates are reflected in an account’s annual percentage yield, which determines the amount of your return.
Factors impacting money market account rates
The main factor that affects money market rates is the broader interest rate environment, which is determined by the Federal Reserve. When the central bank hikes its rates, then banks typically raise their savings account rates. When the Fed lowers rates you can expect bank savings account rates to go down as well.
Another driver of money market rates is the bank or credit union itself, and there can be wide differences in what you earn. Banks that put a big value on building up deposit accounts will offer high rates to attract business. In contrast, banks that prioritize loans and other products usually offer much lower 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.
How to open a money market account
If you want to open a money market account at a bank where you already do business, you just need to go to the account link and make an opening deposit. If you’re opening an account at a new bank, you’ll need to provide information to confirm your identity, including the following:
- 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.
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 for savings
The primary bank alternatives to money market accounts are checking accounts, standard savings accounts and CDs. Checking accounts aren’t a good option unless they pay interest, and even then you’re almost always better off with a money market account because it will pay higher rates.
Most money market accounts also offer higher rates than standard savings accounts, with one notable exception: high-yield savings accounts. You might find better rates with high-yield accounts, but you can’t access money with checks or debit card purchases like you can with money market accounts.
CDs require you to lock up funds for a set period of time, called a term. If you try to withdraw it before the term ends, you’ll face an early withdrawal penalty. That’s not the case with money market accounts. However, CDs are a better option if you want to lock in a high rate for many years.
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,
