Between March 2022 and July 2023, the Federal Reserve raised the benchmark interest rate 11 times. As a result, money market account (MMA) interest rates have skyrocketed.
However, the Fed cut the federal funds rate by 50 basis points in September. As a result, interest rates on deposits, including money market account rates, have begun to decline. It’s more important than ever to compare MMA rates and secure the most possible return on your balance.
According to the FDIC, the national average money market account interest rate is 0.64%. This may not seem like a big deal, but consider that just two years ago it was just 0.23%. This reflects a sharp increase over a short period of time.
This is mainly due to monetary policy decisions by the Federal Reserve, which began raising its base interest rate in March 2022 to counter soaring inflation. In fact, the Fed has raised interest rates 11 times. However, the base interest rate was finally lowered in September, and savings account interest rates began to decline.
Still, some top accounts are currently offering APYs of 5% or more. These interest rates may not last long, so consider opening a money market account now to take advantage of today’s high interest rates.
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The amount of interest you earn from a money market account depends on the annual percentage rate (APY). This is a measure of your total return after one year, taking into account the base interest rate and the frequency with which the interest is compounded (interest on money market accounts is typically compounded daily).
Let’s say you invested $1,000 in MMA at an average interest rate of 0.64% with daily compounding. At the end of the year, the balance increases to $1,006.42. That’s your initial deposit of $1,000 plus just $6.42 in interest.
Now let’s say you instead choose a high-yield money market account that offers a 5% APY. In this case, over the same period, your balance increases to $1,051.27 (which includes interest of $51.27).
The more you deposit into your money market account, the more profits you can earn. For the same example, if you deposited $10,000 into a money market account with a 5% APY, your total balance after one year would be $10,512.67, earning you $512.67 in interest.
