Money market account rates are on an upswing.
Like other deposit accounts, money market rates have increased this year following the Federal Reserve’s rate hikes. And they’re finally starting to look competitive compared to other high-yield account types.
Historically, money market accounts allowed savers to earn interest on their balances when federal restrictions kept banks from offering very high rates on savings accounts. But over the past several years, money market accounts seem to have quietly taken a backseat, or become synonymous with high-yield savings accounts.
Here at NextAdvisor, we regularly track interest rates on savings accounts, CDs, and money market accounts. Since federal rate hikes began earlier this year, money market account rates trailed behind other account types in offering competitive interest.
Now, they’re starting to catch up. Some of the best money market accounts offer interest rates nearly as high as the best high-yield savings accounts, close to 3% APY or more.
Here’s what’s going on with money market accounts right now and what to know before you open one.
Why Money Market Rates Are Going Up Now
“Interest rates are going up at a very rapid clip,” says Greg McBride, CFA, chief financial analyst at Bankrate. Like NextAdvisor, Bankrate is owned by Red Ventures. “We’re seeing returns now that we haven’t seen since 2008 or 2009. And rates are still rising.” That goes for most deposit accounts right now, including money market accounts, savings accounts, and CDs.
But from our regular tracking of the best high-yield accounts among these different types, MMAs have tended to lag behind CDs and savings in raising rates. Only now are some of the best money market account rates topping 2.5% and 3.0% APY.
One potential cause, according to McBride, is that there are simply more high-yield savings accounts to choose from. Because of the sheer amount of high-yield savings accounts available today, there’s more spread among the rates banks offer. “It’s a matter of numbers. If there are ten times as many savings accounts as money market accounts, you’d expect a similar ratio when looking at the highest yields (or even the lowest).”
Regardless, money market accounts and high-yield savings accounts are on the rise — and as long as the Fed keeps up its rate hikes, these accounts will keep getting better too.
Savings rates aren’t going up at all banks
Although average savings rates are rising as a whole, you shouldn’t expect rates to go up everywhere — especially at major national banks. That goes for money market accounts, too.
If your bank isn’t raising rates, you may be missing out on a bigger return, says Shannon Grey, certified financial planner and founder of InvestEdge Planning, a financial planning firm in San Diego. Or if the money market rate isn’t competitive, switching to a high-yield savings account may be a better option.
You likely won’t get the best APY at a major national bank. Instead compare rates at lesser-known online banks or credit unions. Whatever financial institution you choose, make sure it’s FDIC-insured, says Cory Moore, certified financial planner and founder of Moore Financial Planning.
How High Will Money Market Rates Go in 2022?
With more rate hikes expected before the year ends, experts say interest rates on your savings are only going to keep rising.
“Between now and next spring, we’re going to continue to see these rates increase, and you’re going to benefit from that,” says Grey.
Already, some money market accounts earn more than 3% APY, and several others on our list of best money market account rates earn between 2.50% and 2.70% APY, which is similar to the best high yield savings rates today.
But as rates continue to rise across the board, it’s important to remember that choosing the right deposit account for you may not be as simple as choosing the one with the best rate. Pay attention to the account details, such as withdrawal and transfer limits, minimum balance requirements, fees, and convenience to make sure it’s the right account for your needs.
How Money Market Accounts Compare to High-Yield Savings Accounts
Money market accounts are very similar to high-yield savings accounts but offer a few additional checking-like features. Like savings accounts, they carry variable interest rates, so your return will get even better as long as interest rates continue to climb.
Two banking features primarily set money market accounts apart: higher minimum deposit requirements, and the ability to withdraw your money via check or debit card.
Even though some options on our list of the best money market accounts don’t have minimum balance requirements, MMAs do sometimes carry minimums ranging from $100, $500, or $2,500. If you’re considering a money market account, make sure you have the cash required to maintain this minimum balance, even if you need to occasionally withdraw from your account.
Withdrawals are a big benefit of money market accounts over savings. While savings accounts typically allow online transfers only, money market accounts are more likely to come with check-writing or debit card access, which can make it easier to use your balance to cover an unexpected expense or other regular charge. However, like savings accounts, some banks impose transaction limits when you make more than six withdrawals or transfers in a month.
Ultimately, both high-yield savings and money market accounts are good liquid savings vehicles for your emergency or sinking fund, says McBride.
You can always benefit by comparing different options to find the best account type for you and your goals. Think about whether you’re willing to keep a minimum balance or if you’ll need checking account-like features for your savings. Other details, like fees, how you’ll access the account, make transfers, and use mobile and online banking are also important to consider.