What Are Money Market Rates?
Money market accounts (also known as high-yield savings accounts) offer a safe way to earn returns on your money while still keeping access to the funds. The returns you earn are based on the money market rate.
The money market rate, or interest your money can earn, makes these accounts a popular choice for storing short term savings (like an emergency fund). The higher the money market rate, the less your savings will be depreciated by inflation and the more your money can work for you.
How Are Money Market Rates Determined?
Banks and credit unions will invest the deposited funds of a money market account in short term securities, including CDs and Treasury Notes. The interest (i.e. money market rate) earned on these investments is generally calculated daily and paid out at the end of the month. In most cases, this interest payment is deposited into your money market account.
Typically, banks and credit unions can offer money market rates based on the amount of money you plan to house in the money market account. The larger the sum of money, the higher the money market rate you can qualify for.
It’s important to remember that money market rates differ between every bank and credit union. This is why it’s important to shop around for the best money market rate, no matter how much you plan to put in the account.
How to Find the Best Money Market Rates
Below are some tips to find the best money market rate so your money is earning instead of sitting idle.
1. Compare Rates at Different Banks and Credit Unions
You can find money market accounts at most major banks, but smaller banks may be able to offer you better money market rates. Be sure to check rates offered by local credit unions and regional institutions.
Don’t forget about online-only banks, which can sometimes offer the highest money market rate since they don’t have brick-and-mortar operational costs.
When you review the money market rate, also review the flexibility of the account:
Do they offer you checks and a debit card?
How many transactions can you make each month?
2. Review the Maximum and Minimum Deposits
Money market accounts may or may not have a minimum deposit. This is important to know, but should also be accompanied by this question: Does the amount you deposit change your money market rate?
Some money market accounts offer money market rates on a tier system, based on the amount you keep in the account. Here is a hypothetical example of a tiered rate offering from a bank:
0.04%rate for accounts holding up to $4,999 (no minimum deposit)
0.08% rate for accounts holding between $5,000 and $24,999
0.10% rate for accounts holding between $25,000+
Money market accounts may also set a limit on the total amount you can have in your account (and still be earning the money market rate). Typically, limits are $50,000 up to $250,000, which is the maximum amount you can be insured for.
3. Look for a Rate Guarantee
As you look for the highest money market rate, also look for a rate guarantee. Some banks and credit unions will offer these for certain periods of time (like 12 months). If you don’t want to shop around again for a high money market rate at the end of the period, you could choose a bank that historically pays a decent and consistent rate. Just be sure it’s in tune with the average money market rate.
4. Use the Local Search Tool
You can also use our money market search tool to begin your search. This resource only needs your zip code and looks for the best money market rates in your area.
What Are Average Money Market Rates in 2020?
The Federal Deposit Insurance Corporation (FDIC) publishes weekly and annual national rates and rate caps for money market accounts. The average national money market rate for 2020 (thus far) is between 0.50% and 0.61%. Below, you can see some current available rates.
The rates above are national average money market rates and not necessarily “good” ones: currently, anything above 1.00% is considered a high money market rate. In 2020, the highest money market rates hover around 1.75%.
Money Market Rates vs Stock Market Rates
The stock market historically offers a ~7% return over time, beating any of the money market rates by a landslide. But stock market investments come with far more risk. The question is not whether to store all of your money in stock market investments OR a money market account. Instead, you should categorize how much money you need easy access to (in the case of an emergency) and how much money can go towards your long term savings goal (like retirement).