With the Federal Reserve cutting its target interest rate three times in 2024, deposit rates — including money market account (MMA) rates — have started to dip. As interest rates trend downward, it’s more important than ever to compare rates and find the best MMA to maximize your returns.
Current Money Market Account Rates
The national average MMA rate currently stands at 0.64%, according to the FDIC. While this might seem modest, it’s a significant improvement from just three years ago when the average rate was a mere 0.07%. This sharp rise came as the Fed aggressively raised its benchmark rate starting in March 2022 to combat rising inflation, resulting in higher deposit rates. However, after 11 rate hikes, the Fed began cutting rates in late 2024, which has led to a gradual decrease in deposit account rates.
Despite the recent decline, there are still money market accounts offering rates above 4% APY. If you’re looking to earn a strong return on your savings, now may be a good time to lock in one of these higher rates before they disappear.
How Much Can You Earn with a Money Market Account?
The amount you can earn from a money market account depends on the Annual Percentage Yield (APY), which takes into account both the interest rate and the frequency of interest compounding (most MMAs compound daily). Let’s break down how different APYs affect your savings:
Example 1: Average MMA Rate (0.64% APY)
If you deposit $1,000 into an MMA with an average rate of 0.64% APY, your balance after one year (with daily compounding) would grow to $1,006.42. You’d earn $6.42 in interest over the year.
Example 2: High-Yield MMA (4% APY)
Now, if you opt for a 4% APY money market account, your $1,000 would grow to $1,040.81 after one year, earning you $40.81 in interest. The difference is substantial!
Example 3: Larger Deposits Yield Bigger Returns
Let’s say you have a larger deposit of $10,000 in an MMA with 4% APY. After one year, your balance would increase to $10,408.08, which includes $408.08 in interest.
Why You Should Consider Opening an MMA Now
Given the current rate environment and the potential for rates to drop further, it may be wise to take advantage of higher-yield MMAs while they’re still available. The more you deposit, the more you can earn, and with daily compounding, even smaller deposits can generate meaningful interest over time. Compare rates and act quickly to make the most of today’s opportunities.
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