Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
But over time as you earn interest on a larger sum of money, your balance will increase exponentially. For example, let's say you invest $10,000 in a simple-interest account that earns 5%. You'll earn an estimated $500 in interest and your account will be worth $10,500 after a year.
Typically, savings accounts usually don't let you write checks from the account, making money market accounts a unique option to store and tap your money when you need it. The average money market account yield is 0.4 percent annual percentage yield (APY) as of the week of Jan. 6, 2025.
Key takeaways
Disadvantages of money market accounts may include minimum balance requirements, monthly fees and transaction limits. Also, you might be able to find better yields with other deposit accounts.
There are two high-yield checking accounts with interest of at least 7%, though: BCU PowerPlus Checking and Landmark Credit Union Premium Checking Account. Both come with major downsides, though. Are 7% interest savings accounts safe?
Unlike an investment account subject to risk, you won't lose money in a money market account due to investment losses.
For the foreseeable future, you won't find any banks that offer 7% APY on savings accounts. However, you can find some credit unions that pay 7% or more on checking accounts. Before opening an account, take a close look at the terms and conditions to determine whether you can earn the advertised rate.
Some money market accounts require minimum account balances for the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts as emergency funds. Beyond that, not investing will mean missing potential earnings.
A stocks and shares Isa is likely to be most suitable. That is unless you will turn 55 within 30 years, in which case a pension might be a better tax wrapper for you. If you're unsure about the time horizon, you could invest in both a pension and a stocks and shares Isa.
The earnings from money market funds can come from interest income or capital gains, so they're taxed the same way as other investment income.
A 5.00% interest rate can significantly boost your savings. At this rate, your initial $100,000 would accrue $5,000 in interest each year. But monthly compound interest would boost that total even further. At the same 5.00% rate, monthly compound interest would result in a total of $5,116 at the end of the first year.
Bandhan Bank is a leader among private banks, offering 8.05% interest for 1-year fixed deposits. RBL Bank offers 8.00% on FDs with a tenure of 500 days, ensuring that medium-term investors also get good returns.
Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.
They attempt to keep their net asset value (NAV) at a constant $1.00 per share—only the yield goes up and down. But a money market's per share NAV may fall below $1.00 if the investments perform poorly. While investor losses in money market funds have been rare, they are possible.
The 7-Day Yield is the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.