What interest rate you get depends on the bank, the current economy, and how much you deposit
Money market accounts pay interest, but the rate changes constantly and varies widely between banks. Right now, rates at online banks range from roughly 4% to 5.35% annually, while brick-and-mortar banks often pay less than 1%. The difference between these two can mean hundreds of dollars per year on the same deposit.
The rate you receive depends on three things: which bank you choose, what the Federal Reserve has set as its benchmark rate (which changes several times per year), and sometimes how much money you keep in the account. A bank paying 5% today might pay 4.5% in six months if the Fed lowers rates. The same bank might also offer a higher rate if you deposit $25,000 instead of $2,500.
Because rates move constantly, the only way to know what you'll actually earn is to check the current rate at the specific bank you're considering, then understand that rate may change after 30 days or after the Fed makes a move.
Key Takeaways
- Money market account interest rates vary from under 1% at traditional banks to over 5% at online banks, and these rates change frequently.
- The Federal Reserve's decisions affect all banks' rates, but each bank sets its own rate independently and can change it without notice.
- Higher balances sometimes earn higher rates at the same bank, so comparing accounts requires checking the rate tier that matches your deposit amount.
- Interest compounds daily or monthly depending on the bank, which means you earn interest on your interest, but the difference is small at current rates.
Why rates differ so much between banks
Online banks pay higher rates than traditional banks because they have lower costs. They don't maintain physical branches, don't employ as many staff, and don't spend money on building maintenance. Those savings get passed to customers as higher interest rates. A traditional bank with a branch on your corner has to cover the rent, the tellers, and the manager — and that cost comes out of what they can afford to pay depositors.
Banks also compete for deposits. When one online bank raises its rate to 5.25%, others follow within days or weeks. When the Fed cuts rates, banks lower theirs in response, but not always by the same amount. Some banks drop quickly; others lag behind. This creates windows where one bank pays noticeably more than another.
How the Federal Reserve's rate decisions affect what you earn
The Federal Reserve sets a target range for the federal funds rate — the interest rate banks charge each other for overnight loans. This is not the rate you earn on your money market account, but it acts as a ceiling. When the Fed raises its target, banks raise the rates they pay to depositors. When the Fed cuts its target, banks eventually cut what they pay you.
The lag matters. After the Fed cuts rates, some banks wait weeks or months before lowering their rates to depositors. During that window, you might earn more at a bank that hasn't moved yet. Conversely, after the Fed raises rates, banks that move quickly will pay you more sooner.
The Fed has raised rates significantly since 2022, which is why money market accounts now pay much more than they did in 2020 or 2021. If the Fed begins cutting rates again, expect the rates you see advertised to fall gradually over the following months.
How tiered rates work and whether they matter
Some banks offer different rates depending on your balance. You might see a rate of 4.50% on balances up to $25,000, then 4.75% on balances of $25,000 to $100,000, then 5.00% on balances above $100,000. This is called a tiered rate structure.
The difference between tiers is usually small — often 0.25% or less. On a $25,000 deposit, the difference between 4.50% and 4.75% is about $62 per year. On a $100,000 deposit, the difference between 4.75% and 5.00% is about $250 per year. These differences are real money, but they're not usually the main reason to choose one bank over another. A bank paying a flat 5.00% across all balances will almost always beat a bank with tiered rates that top out at 4.75%.
What compounding means and how it affects your earnings
Interest compounds when the bank adds the interest you've earned to your balance, and then pays interest on that larger balance the next period. If you earn $100 in interest in month one, and the bank compounds monthly, you'll earn interest on $100 plus your original deposit in month two.
At current rates, compounding makes a small difference. On a $10,000 deposit earning 5% annually with daily compounding versus monthly compounding, you'll earn about $2 more per year with daily compounding. It's real, but it's not the factor that determines whether an account is worth your time. The difference between a 5% account and a 4% account is what matters — that's $100 per year on a $10,000 deposit.
How to compare rates across banks
To compare money market accounts fairly, you need to check the rate at each bank on the same day, because rates change constantly. Write down the rate, the compounding frequency (daily or monthly), and any balance tiers that apply to your deposit amount.
Then calculate what you'll earn in a year. If a bank pays 5% on a $10,000 deposit, you'll earn roughly $500 in the first year (the actual amount is slightly higher because of compounding, but 5% of the balance is the quick math). If another bank pays 4.5%, you'll earn roughly $450. The difference is $50 per year — small enough that convenience or customer service might outweigh it, but large enough to notice if you're comparing many accounts.
Check the bank's website directly rather than relying on comparison sites, because rates change daily and comparison sites sometimes lag behind. Most banks display their current money market rate prominently on the homepage or in the savings section.
What happens to your rate after you open the account
The rate you see when you open the account is not locked in. Banks can change the rate on money market accounts at any time, usually with notice of 30 days or less. When the Fed cuts rates, expect your bank to cut your rate within a few weeks. When the Fed raises rates, your bank may or may not raise your rate — it depends on whether they're trying to attract new deposits or keep costs down.
This is different from a certificate of deposit (CD), where the rate is locked in for the full term. With a money market account, you have flexibility to withdraw money anytime without penalty, but you give up the certainty of a fixed rate. That trade-off is the core of how money market accounts work.
Frequently Asked Questions
Is the interest rate on a money market account may provide?
No. Banks can change the rate at any time, usually with 30 days' notice. The rate you see when you open the account may be different in three months. This is the trade-off for being able to withdraw your money without penalty.
Why do online banks pay so much more than my current bank?
Online banks have lower operating costs because they don't maintain physical branches. They pass those savings to customers through higher interest rates. If your current bank pays under 1% and online banks are paying over 5%, switching could earn you hundreds of dollars per year on the same deposit.
Does it matter if interest compounds daily or monthly?
At current rates, the difference is small — usually a few dollars per year on a typical deposit. The difference between banks' base rates (5% versus 4.5%, for example) matters much more than the compounding frequency.
What happens to my interest rate if the Federal Reserve cuts rates?
Your bank will eventually lower your rate, usually within a few weeks. The exact timing and amount depend on the bank's strategy. Some banks cut quickly; others wait longer. During the lag, you may earn more than banks that moved faster.
Can I lock in today's rate so it doesn't go down?
No. Money market accounts have variable rates that change at the bank's discretion. If you want a locked-in rate, you need a certificate of deposit (CD), which fixes the rate for a set term but requires you to keep the money there until the term ends.