The Federal Reserve will consider changing interest rates today as part of its efforts to fight inflation. But even if rates hold steady, they remain relatively high. While high interest rates can be a challenge for house or car shoppers, it can be an ideal time for savers. One way to take advantage of today’s higher interest rate environment is a money market account.
Right now, money market accounts offer rates as high as 5.00% or more, however, a certificate of deposit (CD) would be a better choice if you're looking to save right now. Even a short-term CD would offer you a way to secure a guaranteed rate of return for a fixed period of time, regardless of what happens with the Fed today.
Key Takeaways
- Money market accounts are a good alternative to checking and savings accounts if you don’t need to write a lot of checks, and right now, the top account offers a rate of over 5.00%.
- The Federal Reserve has hiked interest rates this year, pushing money market accounts to offer interest rates that are actually higher than the top savings account rates right now.
- However, a money market account has a variable interest rate, so that means it could fall if (or when) the Fed lowers rates, so now is the time to maximize your deposits.
- If you don't want to risk opening a money market account and seeing your rate fall, a CD may be a better option.
What Money Market Accounts Offer
If the goal is to beat inflation, money market accounts, sometimes called money market deposit accounts, can provide an attractive alternative to a basic savings account because of the higher interest rates. These bank accounts are offered by banks or credit unions and insured by the Federal Deposit Insurance Corporation (FDIC), with terms that can vary depending on the institution. A money market account should not be confused with a money market fund, which is a type of mutual fund.
Money market accounts are like savings accounts except that they often come with limited check-writing privileges. And most money market accounts require a minimum initial deposit and balance that you must maintain. They can be used as savings accounts for short-term goals—buying a house, going on vacation, or maintaining an emergency fund are often the primary purposes of a money market account. Our rankings of the best money market accounts also over high rates around or over 5.00%.
However, if you need immediate access to funds and check writing isn't necessary, consider a high-yield savings account instead.
Why Open a Money Market Account Right Now?
When interest rates were low, such as during the pandemic, neither money market accounts nor savings accounts offered users much benefit. However, when the Federal Reserve started its interest rate hiking campaign in March 2022, its goal was to fight inflation, but a welcome benefit for savers is that it drove up rates for both money market accounts and high-yield savings accounts.
With the federal funds rate range at 5.00% to 5.25%, banks and credit unions are able to offer better rates on MMAs, which can go as high as an annual percentage yield (APY) of 5.25%.
Money market accounts take advantage of these higher rates. However, if the Federal Reserve were to begin cutting interest rates—which it says it will do when inflation drops to 2% or if unemployment becomes too high—then the rates offered on MMAs could fall.
Some expect these interest rates to fall later this year after the possible pause in Fed rates today, which would also eventually send rates lower on money market accounts and other high-interest accounts.
Alternatives to Money Market Accounts
High-yield savings accounts can also offer attractive rates, but they don't offer the check-writing ability. Savers can find a number of options and should consider shopping for the best rate.
CDs also offer attractive rates right now. They will lock in your rate for the period of time of the CD's term. And the best CD rates are also offering rates in the 5.00%-plus range for now. So if you don't need immediate access to your cash, you can guarantee a relatively high return rate.
While money market accounts have many benefits for the short-term saver, CDs offer you the best chance at securing your high-interest rates for longer than a high-yield savings account or a money market account right now.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 60 banks and credit unions that offer money market accounts to customers nationwide. We determine daily rankings of the top-paying money accounts. To qualify for our list, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000. The account also must allow check-writing.
Banks and credit unions must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best money market accounts, read our full methodology.
