How do money market accounts work?
Basically, it works like this: You open a money market account at the bank. The bank pays you interest on the money that you deposit and leave in that account. The bank then loans that money out to other people, only they charge a slightly higher interest for the loan than what they pay you for your account.
They pay out interest, with rates determined by the current market conditions and the bank's own policies. Unlike standard savings accounts, MMAs also have some features that are common to standard checking accounts, such as the ability to take money out with a check or at an ATM. MMAs are FDIC-insured, as well.
A money market account is an interest-bearing savings account that offers a higher-yield interest rate, allowing you to earn faster than a traditional savings account.
The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less. It enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow needs.
Advantages of money market accounts often include high yields, liquidity and federal insurance for your funds. They may come with the ability to pay bills, write checks and make debit card purchases.
Money market accounts can include checks and debit cards with ATM access. However, these accounts may limit certain monthly transactions, like online transfers and outgoing checks. In exchange, financial institutions often offer a higher interest rate on money market accounts than checking and savings accounts.
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.
A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
You will often find money market accounts that earn according to a balance tier. This simply means that your exact interest rate depends on your account balance, with higher balances usually earning at a higher rate. Average money market rates fall between 0.01% APY and 3.45% APY, again depending on your balance.
A money market account (MMA) is an interest-bearing deposit account at a financial institution like a bank. Generally, MMAs pay higher interest rates than regular savings accounts, and some even include check writing and debit card options. MMAs are insured by the FDIC or NCUA for up to $250,000 per depositor.
What is the main function of money markets?
Money markets serve five functions—to finance trade, finance industry, invest profitably, enhance commercial banks' self-sufficiency, and lubricate central bank policies.
The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.
The money market illustrates how the demand for money and the supply of money interact to determine nominal interest rates.
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.
| 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 |
U.S. government money market funds are typically regarded as the safest of the three, and within that category, those with a high concentration of Treasuries—with full government backing—would be exposed to a lower likelihood of default risk.
There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.
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.
- Quontic Bank: Earn up to 5.00% APY.
- Redneck Bank®: Earn up to 4.90% APY.
- Republic Bank of Chicago: Earn up to 5.21% APY.
- Sallie Mae: Earn up to 4.65% APY.
- UFB Direct: Earn up to 5.25% APY.
- Vio Bank: Earn up to 5.30% APY.
- ZYNLO® Bank: Earn up to 5.00% APY.
There aren't any traditional banks offering a 7% interest savings account in the U.S., but you will find some credit unions that offer checking accounts and certificates with rates near or above 7.00% APY. It's important to note that savings account rates are variable and can change at any time.
Why is Credit Union better than bank?
Better interest rates: Credit unions typically offer higher interest rates on savings accounts because they have lower overhead costs than banks. Similarly, they offer lower interest rates on loans. Customer service: Credit unions pride themselves on offering better customer service than banks.
- up to 4.60% APY: SoFi Checking and Savings (Member FDIC.)
- 5.00% APY for balances of $5,000 or more APY: CIT Platinum Savings (Member FDIC.)
- 5.00% APY: LendingClub High-Yield Savings (Member FDIC.)
- 4.25% APY: E*TRADE Premium Savings Account (Member FDIC.)
You can withdraw money from your money market account whenever you'd like. However, your bank may place limits on how many withdrawals you can make in a single statement period. Additional withdrawals typically incur a fee.
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.
The money market refers to trading in very short-term debt investments. At the wholesale level, it involves large-volume trades between institutions and traders. At the retail level, it includes money market mutual funds bought by individual investors and money market accounts opened by bank customers.
