Here’s what it means for money market accounts

The Federal Reserve announced on Wednesday that it would keep interest rates at current levels. The decision ended – at least for the time being – a series of ten consecutive rate hikes from March 2022 aimed at fighting inflation. The hiatus in interest rates means that money market account (MMA) yields are likely to remain at the highest levels we've seen since 2007. The highest MMA interest rate today is 5.25%.

How Fed rate decisions affect MMA rates

For the first time in more than a year, the central bank decided not to raise interest rates, leaving interest rates in their current range of 5% to 5.25%. The decisions made by the Fed affect the economy in a number of ways. For example, the Fed Funds Rate shapes the interest rates paid on many different types of financial products. This includes the annual percentage return (APY) that depositors can earn on savings products at their bank or credit union.

Money market accounts are an example of a banking product whose interest rates are determined by central bank policy decisions. With this type of account, depositors enjoy some of the best features of checking and savings accounts.

Money market accounts typically offer higher interest rates than traditional savings accounts and may also exceed the interest rates on high-yield savings accounts. In addition, account holders may be able to write checks or use a debit card associated with the account, typically for a limited number of monthly withdrawals.

The top money market accounts are currently paying an APR of 4.00% or more, and as of Wednesday, the nation's top money market account was offering an interest rate of 5.25%. Yields on the best money market accounts have risen over the past year in line with rate hikes decided by the Fed.

What's next for MMAs?

Signs that inflation might finally be cooling and concerns that excessively high interest rates could hurt the economy contributed to the decision to end the cycle of interest rate hikes in June. However, Fed officials hinted that Wednesday's halt to rate hikes is likely to be temporary as policymakers predict they will hike interest rates by another 50 basis points by the end of 2023.

While Wednesday's pause did little to set the tone, money market fund rates are floating and likely to fluctuate based on future economic developments and upcoming Fed policy decisions.

Any further increases in interest rates would likely be welcome news for people looking to maximize their savings while enjoying check-writing privileges — traits that make money market accounts a good vehicle for those looking to save for short-term goals.

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With Fed officials hinting that there could be more rate hikes this year, there is a possibility that money market yields could rise even higher.

Disclosure of Tariff Collection Methodology

Each business day, Investopedia tracks interest rate data from more than 60 banks and credit unions that offer money market accounts to their customers nationwide. We determine the ranking of the best paying cash accounts on a daily basis. To qualify for our list, the institution must be Federal Deposit Insurance Corp. [FDIC] for banks: National Credit Union Administration [NCUA] for credit unions) and the minimum initial deposit into the account cannot exceed $25,000. The account must also allow checks to be written.

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 in order to become a member if you don't meet other eligibility criteria (like not living in a specific area or working in a specific type of job). ), We exclude credit unions whose donation needs are $40 or more. For more information on how we select the best money market accounts, see our full methodology.

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