How are money markets paid out?
For example, a $10,000 investment in a money market fund with a 5% SEC yield would earn $500 on an annual basis (10,000 x 0.05). Details vary by fund and fund provider, but money market funds typically pay distributions monthly.
How Do Money Market Accounts Work? Money market accounts work like other deposit accounts, such as savings accounts. As customers deposit funds in a money market account, they earn interest on those funds. Typically, interest on money market accounts is compounded daily and paid monthly.
Usually you can make unlimited withdrawals and payments by using an ATM or by making the withdrawal in person, by mail, or by telephone. A money market account might require a minimum amount to be deposited.
Interest on money market accounts is usually compounded daily and paid monthly. The cool thing about compounded interest is that the bank is paying you interest on the money they've paid you in interest. Interest rates paid by money market accounts can vary quite a bit from bank to bank.
Although interest structures can vary by bank or credit union, money market accounts usually compound interest daily, so the amount of interest you earn grows every day. However, the interest is only credited to your account — reflected on your account balance — monthly.
| Account | National average money market account | Sallie Mae Money Market |
|---|---|---|
| Deposit amount | $10,000 | $10,000 |
| APY | 0.68% APY | 4.65% APY |
| Earnings after six months | $33.94 | $229.86 |
| Earnings after 1 year | $68 | $465 |
All investments are subject to market risk, including possible loss of principal. Retail Money Market Funds: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so.
Indirectly losing money, however, is a downside of money market accounts. Indirect loss can occur if the interest rates tied to the account fall, thus diminishing the initial return value of your account.
However, this only happens very rarely, but because money market funds are not FDIC-insured, meaning that money market funds can lose money.
Taxable money market funds, also known as prime money market funds, usually offer higher yields than tax-exempt funds, but any income is subject to taxes. Prime funds invest in corporate and bank debt issued by U.S. and international entities.
Where can I get 7% interest on my money?
- As of May 2024, no banks are offering 7% interest rates on savings accounts.
- Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
A money market account can be a low-risk way to grow your money, especially if you open an account with a competitive rate. The money in your account remains liquid — or easily accessible — making it ideal for short-term savings goals.
Generally speaking, money market accounts are very safe. At banks, money market account balances are insured by the FDIC, and at credit unions, balances are insured by the NCUA. Both the FDIC and NCUA insure up to $250,000 per depositor, per account ownership category per insured institution.
The 7-Day Yield represents the annualized fund yield based on the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
- Redneck Bank – 4.90% APY.
- First Foundation Bank – 4.90% APY.
- Sallie Mae Bank – 4.65% APY.
- Prime Alliance Bank – 4.50% APY.
- Presidential Bank – 4.37% APY.
- EverBank – 4.30% APY.
- BankUnited – 4.25% APY.
- U.S. Bank – 4.25% APY.
All money market accounts are insured. If the account is held at a bank it is insured by the Federal Deposit Insurance Corporation (FDIC). A money market at a credit union is insured by the National Credit Union Administration (NCUA). Both FDIC and NCUA insure money market accounts up to $250,000.
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
- Advantages of money market accounts often include high yields, liquidity and federal insurance for your funds. ...
- Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
Has anyone ever lost money in a money market fund?
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.
Money market accounts offer flexibility with check-writing and debit cards, savings accounts are more accessible and have lower fees, and CDs offer higher interest rates but with a commitment to keep your money locked away for a set period of time.
Money Market Funds
Ultra-conservative investors and unsophisticated investors often stash their cash in money market funds. While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.
Limitations: Many banks and credit unions have transaction limits on money market accounts, meaning a money market account can't replace a checking account for regular banking. Minimums: Some money market accounts have minimum opening deposits or minimum balances required to avoid fees or earn the highest rate.
