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What to Know About Money Market Rates
A couple of years ago, an MMA would be a common suggestion to round out a financial portfolio, according to financial advisors Kolton Kyne, with Ameriprise Financial, a financial planning firm based in Minneapolis, and Matthew Shiney, of Edward Jones, an investment firm based in Saint Louis. They gave people decent returns thanks to high-interest rates and compound interest, along with the benefit of liquidity.
But, today MMA rates don’t hold up. This year, we’ve seen the Federal Reserve cut its rate to historic lows to help support our pandemic-battered economy — and other interest rates have followed suit. That’s good news if you’re trying to score a low-interest rate on a car loan or a mortgage. But it’s bad news if you’re the one trying to make money off of interest, as is the case with MMAs.
Right now, MMA interest rates are so low they generally aren’t offering much in the way of earnings beyond what you’ll find with a high-yield savings account. But MMAs come with higher account balance minimums than most savings accounts.
Best Money Market Rates for October 2020
|Prime Alliance Bank||1.01%||$0|
|BMO Harris Bank||0.60%||$5000|
This list does not represent the entire market. To rank the money market accounts you’re most likely to be considering, we began by analyzing 25 of the most commonly reviewed and searched-for money market accounts.
Then, we eliminated any credit unions, which have membership requirements that limit who can open an account with them. Many credit unions offer competitive terms for those who qualify; check your local area or use a credit union locator to compare rates. We also eliminated any banks that don’t make information on rates and fees easy to find on their websites. Next, we eliminated any banks that charge monthly service fees. Many banks offer ways to waive such fees, such as maintaining a minimum daily average balance of a set amount. But enough other banks offer a simpler path with no monthly service fee, so we think it’s worth skipping any bank that charges one. Finally, we made sure all of the institutions offering these accounts are FDIC insured, which gives greater security to your funds in the unlikely event of a bank failure.
The APYs shown above are as of July 28, 2020. These are the rates offered for the lowest minimum deposit to open an account. Some banks offer higher promotional APY offers, or higher APY for higher balances than are shown above, but we kept our list to the basic entrypoint rates available with no strings attached and outside of any promotional period or offer.
BMO Harris Bank
BMO Harris Bank requires you put at least $5,000 into your MMA to open it, but you don’t need to maintain this balance after opening your account. And you won’t be charged monthly maintenance fees.
Northern Bank requires a minimum initial deposit of $5,000, but it doesn’t charge any monthly service fees. It charges $20 per transaction over the six-per-month limit on electronic, check, and telephone transactions.
Redneck Bank MMAs come with a free VISA debit card and no minimum account balances. You need $500 to open a money market account with them.
Redneck charges $3 a month for paper statements, but electronic statements are free. If you make more than six transactions in any given month, you’ll be charged $5 for each additional transaction.
You’ll need $100 to open a CIT Bank money market account. It doesn’t charge any monthly service fees.
With CIT Bank, your interest is compounded daily, and you get your earnings monthly. It charges $10 for each transaction over the six-per-month cap, but it limits the maximum fee to $50 per month.
Quontic scales its APYs. If you plan to deposit over $150,000 into your MMA, you’ll get the highest yield it offers. Account balances between $5,000 and $149,999 get the mid-tier APY. If you plan to put less than $5,000 into your MMA, you can still open an account with Quontic (its minimal initial deposit is just $100), but you’ll get its lowest APY.
Quontic Bank doesn’t charge monthly service fees. It compounds interest daily and pays earnings monthly.
Prime Alliance Bank
MMAs from Prime Alliance Bank come with no minimum balance requirements or monthly service fees. You can also have your interest payments sent to an external bank account via ACH.
You’ll get access to the mobile app, which you can use to deposit checks.
Sallie Mae doesn’t require a minimum account balance and doesn’t charge monthly service fees.
Its interest rate gets compounded daily, and you get your earnings paid out every month.
Discover advertises, “No. Fees. Period.” For example, it doesn’t charge fees for balances below its minimum or withdrawals from its in-network ATMs.
It’s another institution offering higher APYs for higher account balances. To earn the most interest possible with Discover, you’ll need to keep at least $100,000 in your MMA.
TIAA’s MMAs come with its Yield Pledge promise. According to this promise, it looks at all competitors’ yields each week and adjusts yield as necessary to make sure it’s in the top 5% of what it deems “Competitive Accounts.”
To earn the most with them, you’ll need at least $100,00 in your MMA. It scales MMA APYs in five tiers, with accounts under $10,000 earning the least.
You’ll need $500 to open a money market account with TIAA. It doesn’t charge a monthly account fee.
Synchrony MMAs come with no minimum balance. It won’t charge you a fee for more than six transactions per month, either (but go over the limit too frequently, it may be forced to close your account, as is the case with all MMAs).
You can use an app to manage your account.
Many customers love Ally Bank for its ease of use and customer service.
For example, you can use Ally’s app with your MMA, making it possible to deposit checks from your phone. Ally also doesn’t require a minimum account balance or charge monthly maintenance fees. You’ll pay $10 per excessive transaction (transaction over the six-per-month cap).
When Is a Money Market Account a Good Investment?
Money market accounts deliver the best returns when the markets are performing well. And that’s not the case right now.
Because the pandemic has negatively affected rates, we wouldn’t recommend opening a new MMA right now. But when markets are on the upswing, an MMA can offer you a high-yield savings account with more liquidity than a CD. If you’re looking for a place to park your money for the short term, we recommend comparing MMA yield rates against high-yield savings accounts. Just make sure you pay attention to the account balance minimums with any MMA you seriously consider.
What Is a Money Market Account?
Money market accounts (MMAs) are a bit of a hybrid. They generally offer higher interest rates than traditional savings accounts, with more liquidity (ability to access your money) than a certificate of deposit (CD). They also give you the opportunity to use your money like a checking account, but with limitations.
Basically, a money market account is a place to securely store your cash reserves, like a savings account, with some checking-like features. Some money market accounts allow you to write checks from the account or use a debit card attached to it, for example, but you’re usually limited to six transactions a month.
The real perk with MMAs is they can offer a nice yield, especially for a savings-style account. As the name implies, these accounts are tied to the performance of money markets. That means when those markets are doing well, you’ll usually see a higher interest yield on your money. When the markets perform poorly, though, you risk minimal yield.
In that sense, money market accounts are more to manage and higher-risk than high-yield savings accounts.
Money Market Terminology You Should Know
MMA: Short for money market account. These accounts usually offer higher interest rate yields than traditional savings accounts with some checking account features.
APY: Short for annual percent yield, or the percentage of the money you have in the account you’ll get back in the form of interest over the course of one year. Most institutions calculate your interest rate daily (based on money market performance) and compound your interest periodically (e.g., daily or monthly) to arrive at your APY.
Interest rate: This is the rate at which you’ll earn interest on the money you have in your MMA. Again, many institutions adjust this rate on a daily basis based on current market performance.
High-yield: Generally, this is an umbrella term used to denote that a certain account offers more interest-earning potential than other accounts like it. For example, a high-yield savings account will provide you with a higher interest rate than a traditional savings account. MMAs are considered high-yield accounts.
Minimum deposit: This is the minimum amount of money you need to put into MMAs to open them.
Minimum balance: This is the minimum amount of money you need to keep in your MMA to avoid incurring fees.
Earnings: This is the money your financial institution pays you based on your interest rate and the money you have in your MMA. Usually, you’ll get earnings deposited into your account monthly or quarterly.
Compound interest: This is a huge perk of MMAs. Many MMAs compound interest daily or monthly. Let’s say your interest compounds daily. Each day, your earned interest is credited to your account balance (even if it’s not deposited in the form of earnings yet). That means tomorrow, you can earn interest on the previous day’s interest — and so on. Compound interest is the best interest-based way to earn money quickly.
FDIC deposit insurance: MMAs are backed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. If anything happens to the financial institution you open your MMA, insurance will pay out to ensure you don’t personally lose any money (up to the $250,000 limit).
Transaction limitations: Per limits set by the Federal Reserve Board, institutions offer MMAs will limit you to six withdrawals or transfers per month or monthly statement period. With some MMAs, you can get around the six-per-month limit by making withdrawals/transfers in person at one of the financial institution’s branches or ATMs or making a request by mail or phone.
How to Choose a Money Market Account
Finding the best MMA comes down to three things:
Since the MMA is probably going to come with things like account balance minimums and limit you to six transactions per month, you want to get something in return. Look for an interest rate higher than a high-yield savings account.
Balance restrictions and perks
Many financial institutions that offer MMAs adjust what you get from the account based on how much money you keep in it. It’s helpful to have a ballpark idea of how much money you plan to keep in your MMA for two reasons. First, you can make sure you’ll be over the account balance minimum. Secondly, you can see what type of APY you can expect based on your account balance.
The institution itself
Since MMAs are backed by the FDIC, you can rest easy knowing your money’s secure unless you plan to deposit more than $250,000. So it comes down to what you value in a financial institution. If you like to do everything from your phone, check out your app options. If you value customer service, look for an institution offering 24/7 live support.
Money Market Pros and Cons
|MMA Pros||MMA Cons|
|Potential for high yields between the APY and daily compound interest||Rates fluctuate with the market, leaving you with lower yields when money markets are performing poorly (like right now)|
|Liquidity, i.e., the ability to use the money in your account for up to six transactions a month||Limited to six transactions per month or monthly billing cycle|
|FDIC-insured account balance up to $250,000||Many MMAs come with account balance minimums and only offer the highest APYs to account with large balances|
What Are the Risks with Money Market Accounts?
With an MMA, you take on some of the risk of market volatility. Your financial institution will assess your interest rate regularly (usually on a daily basis) and adjust it based on money market performance. When the markets aren’t performing well — like in a pandemic-throttled economy, for example — you’ll get a lower interest rate and, consequently, less in the way of earnings.
And because many MMAs come with transaction limits and an account balance minimum, you run the risk of getting charged fees that eat into your returns. Right now, CDs and high-yield savings will probably deliver similar yields without any of those risks (although with CDs, you do lose some liquidity).
View an in-depth look at the pros and cons of Money Market accounts here.
How to Open a Money Market Account
Plenty of financial institutions offer MMAs advertise a three-step process:
1. Give them your information
Usually, this means your address, contact info, and Social Security number (which is why it’s important to make sure you choose a secure, reputable institution).
2. Fund your account
In most cases, you can do this by mailing in a check or making a wire or electronic transfer.
3. Confirm and manage your account.
At that point, you should get an email confirming you’re all set up. From there, you can add to your account balance at any point or use the money in your account for up to six transactions a month. Just make sure you never let your account balance dip below the minimum if your MMA has one.
Alternatives to Money Market Accounts
As we’ve mentioned, other savings-style accounts offer comparable rates to MMAs right now. We recommend looking at high-yield savings accounts and CDs. High-yield savings accounts function just like traditional savings accounts, but they offer you higher yields, as the name suggests.
CDs also offer comparably high APYs, but you need to commit to keeping your money in the CD for a set period of time (e.g., five years).
High-yield savings accounts and CDs are usually less to manage than MMAs, which is why we’d recommend them right now when all of their yield rates are about the same. But when the market rebounds, MMA APYs will go up with it. In a few years, MMAs may trounce the yields offered by these other savings vehicles.