Money market rates are still high in 2024, but they may have plateaued. Rates on money market accounts steadily increased throughout last year, but it’s unlikely they’ll continue going up this year, as the Federal Reserve has indicated it intends to lower interest rates at some point in 2024. The Federal Reserve does not set interest rates for banks, but it does set a federal funds rate. This is the interest rate range used to guide lending between banks and help promote economic stability, and financial institutions look to it for guidance on setting their own rates for customers. In September 2023, the Federal Open Market Committee announced a pause to federal funds rate hikes, marking the end of ten consecutive rate increases dating back to March 2022. The Fed has held rates steady at the target range of 5.25% to 5.50% since then. Considering consumers are currently seeing some of the best money market rates they’ve seen in years, this trend is likely to continue as long as banks are willing to compete for new deposits. However, rates are likely to begin trending downward at some point next year. According to the Federal Deposit Insurance Corporation (FDIC), the average money market rate is 0.64% as of September 16, 2024.
People haven’t looked at money market accounts for several years because rates were so low. But rates are good now, and the risks are minimal. You can probably be making more money on your savings with a money market account. – Ann Logue, financial writer and author of Hedge Funds For Dummies
Money market accounts (MMAs) are a type of deposit account—offered by traditional banks, credit unions and online banks—that generally walk the line between checking and savings accounts. You get the interest-earning power of a high-yield savings account and, with many MMAs, the accessibility of a checking account, including a debit card and check-writing privileges.
Money market accounts don’t offer as much liquidity as checking accounts because the number of transactions you can make per statement cycle is often limited. But they tend to provide more access to your cash than a savings account.
A high-yield money market account is a money market account that pays an interest rate multiple times higher than the average money market account rate, as determined by the FDIC. You can typically find high-yield money market accounts at online banks and credit unions.
Money market accounts work similarly to savings accounts in that you earn interest on the funds you deposit. These accounts aren’t meant for everyday spending, like a checking product. But they tend to offer limited liquidity and access to funds—you may be able to write checks or make debit transactions.
Money market accounts offer a middle ground between savings and checking, providing the interest earnings of a savings account and the liquidity (check-writing and debit card capabilities) of a checking account. However, they’re not without drawbacks and might be too restrictive for some savers.
Flexibility. Many money market accounts come with checks and debit cards, allowing you to spend your savings, make withdrawals and transfer funds.
Transaction restrictions. Many banks and credit unions impose transaction limits and charge a fee for excess withdrawals.
Interest earnings. Money market accounts earn interest on funds you keep on deposit. These rates often compete with the best high-yield savings accounts.
Interest rates. The rate of interest on a money market account isn’t fixed, meaning it can fluctuate. You won’t know exactly how much you will earn over time.
Safety. MMA funds are insured when held with banks backed by the FDIC or credit unions backed by the NCUA.
Balance requirements. Many money market accounts require high deposits to open and high balances to earn the best rates and avoid monthly fees.