The Federal Reserve announced Wednesday that it would maintain interest rates at current levels. The decision ended—for now at least—a streak of 10 consecutive rate hikes beginning in March 2022 that were aimed at fighting inflation. The rate-hike pause means that yields for money market accounts (MMAs) will likely hold steady at the highest rates we've seen since 2007. The top MMA rate today is 5.25%.
How Fed Rate Decisions Affect MMA Rates
For the first time in more than a year, the central bank opted not to raise the federal funds rate, holding the key benchmark at its current range of 5% to 5.25%. The decisions made by the Fed ripple through the economy in a variety of ways. For instance, the fed funds rate shapes the interest rates that are paid by many different types of financial products. This includes the annual percentage yield (APY) that depositors can earn on savings products at their bank or credit union.
Money market accounts are one example of a banking product whose interest rates are shaped by the central bank's policy determinations. With this type of account, depositors enjoy some of the best qualities of both checking accounts and savings accounts.
Money market accounts typically offer higher interest rates than traditional savings accounts, and may outdo high-yield savings account rates, too. On top of that, account holders may be able to write checks or use a debit card attached to the account, usually for a limited amount of withdrawals every month.
The best money market accounts currently pay an APY of 4.00% or more, and as of Wednesday, the top nationally available money market account offered a rate of 5.25%. The yields available on the best money market accounts have risen over the past year, in line with the interest-rate hikes enacted by the Fed.
What Comes Next for MMAs
Signs that inflation finally may be cooling and concerns that excessively high interest rates could damage the economy contributed to the decision to pause the hiking cycle in June. However, Fed officials suggested that Wednesday's halt in rate increases will likely be temporary, with policymakers predicting that they will lift the fed funds rate by an additional 50 basis points by the end of 2023.
Although Wednesday's pause did little to tip the scale, the rates on money market funds are variable and likely to fluctuate based on future developments in the economy and upcoming Fed policy decisions.
Any further increase in rates would likely be welcome news for people looking to maximize their savings while enjoying check-writing privileges—characteristics that make money market accounts a good vehicle for those looking to save for short-term goals.
Note
With Fed officials suggesting that there could be more rate hikes to come this year, there's a chance that money market yields could climb even higher.
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 (Federal Deposit Insurance Corp. [FDIC] for banks, National Credit Union Administration [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.
