Money market accounts are steadily growing in popularity. When you open a bank account, one of the main tradeoffs is the choice between greater access to your funds or a higher interest rate. A checking account is known for easy access to your funds, but almost non-existent interest earnings. If you care about having higher interest earnings, then traditionally, a savings account would work, but with limited funds access. However, a money market account gives you higher interest earnings and also some degree of access to your account balance. But, how often do money market accounts pay interest? Let’s find out!
Why Do Money Market Accounts Pay Higher Interest?
Banks use the money deposited in savings accounts to lend to borrowers. These borrowers pay interest on their loans, and after covering operational costs, banks pay interest back to the depositors. These interest payments encourage people to deposit more money into the banking system. Of course, the difference between money earned as interest on loans minus any operating costs and interest paid to depositors represents profits to the banks.
Historically, customers would accept the tradeoff of no interest in exchange for check-writing capabilities. However, this has changed, as now customers want to have greater and easier access to their deposits while maximizing the interest they gain on these deposits.
Money market accounts serve as the middle ground between checking and savings accounts. While they don’t offer unlimited check-writing (the limit is six checks/withdrawals a month), they also have higher minimum balances than savings accounts do.
At times, money market accounts will have a tiered rate with a lower interest rate applying to relatively low-balance accounts with the higher and more attractive rates activating with higher balances. Money market accounts intentionally pay higher interest rates to attract more deposits.
How Often Do Money Market Accounts Pay Interest?
You can expect to get interest payments according to the interval outlined in the deposit agreement at your particular financial institution. However, after opening your money market account, you would need to:
- Maintain the appropriate minimum balance to secure the interest payments and avoid any loss of payments (or low balance fees).
- Meet any other specific requirements outlined by your financial institution.
You will find that most institutions will make interest payments every month. For some, this will be the last day of the month, others may choose to pay interest on the day of the month that the account was established.
You should also note that there is a difference between when interest is credited (and pending) to your account, versus when it is paid to your money market account. For many online account summaries, you will see how much interest is accrued on your money market account. The interest payments will only show as posted transactions on your account when they have been paid.
What is the reason for this disconnect between when the interest gets credited versus when it’s paid? Financial institutions use daily compounding, meaning that they calculate a balance on an account each day and then apply a daily interest rate to calculate that day’s interest payment. This daily amount then accumulates and shows up as the total interest to be paid on your money market account.
Monitor Your Money Market Account
If you’re opening a money market account with the intent to get a higher interest rate, then make sure that you monitor your account to keep it compliant.
Always check to ensure that your interest payments are posted to your account. As long as you are aware of how interest works, you can expect to see your hard-earned money grow your account balance over time.
Money Market Interest Rates
The money market is where investors trade low-risk, highly-liquid assets that mature in a short time (usually within a year). This market is best for persons seeking to store their cash for a short time while having easy access to the funds in the event of any emergency. You can also use a money market to hold funds during times of market volatility. However, you should know how the interest rate paid to your account is determined.
A few characteristics of the money market account include:
- Since the money market is dependent on highly-liquid assets, these are fairly safe, low-risk investments.
- The lower the risk, the lower the interest rate.
- Interest is not only calculated daily but also calculated on prior interest payments made to your account (compound interest).
Save for Your Brighter Future With Riegelwood FCU
How often do money market accounts pay interest? We’ve explored this and other aspects of these accounts. Since money market accounts offer attractive interest payments, they are a great vehicle to build wealth for the future. At Riegelwood Federal Credit Union, we offer attractive options to help you grow wealth. So contact us today to discuss how we can help you save for a brighter and better future for you and your family.