The best high-yield money market accounts for August 2023

Money market accounts are a hybrid of checking and savings accounts. You can often earn a higher interest rate than a savings account and get flexible access to your funds like a checking account.

And yields are edging higher. As a result of the Federal Reserve’s latest rate hike on July 26, interest rates are rising on bank deposit accounts. And the best high-yield money market accounts are showing some of their most impressive rates in years.

Opening a money market account can help you work toward and accomplish your short-term savings goals, and finding an account with a high annual percentage yield (APY) can help you maximize your efforts.

Understanding yield

Money market accounts offer interest on your deposits, either at a set rate regardless of your balance or on a tiered basis, with various rates based on your balance.

But like other interest-bearing bank accounts, money market accounts compound the interest you earn, typically on a daily basis, and pay it out monthly. Compounding interest increases your yield because interest accrues not only on your principal balance but also on the interest that’s accumulated since the last time you were paid.

For example, if you have a $10,000 balance in an account with a 4% interest rate, you’d earn roughly $1.10 in interest on Day 1. On Day 2, the bank or credit union will apply the same interest rate to a balance of $10,001.10 instead of $10,000.

Because of compounding interest, the APY on your account will be higher than your interest rate. To calculate APY, you’ll use the following formula:

In this equation, “r” is the account’s annual interest rate in decimal form, and “n” is the number of compounding periods in a year.

APY example

Let’s say you have a money market account that earns a 4% interest rate and compounds interest daily. To calculate the APY for the account, fill out the equation as follows (note that you’ll likely need a calculator for the exponen)t:

While the APY typically isn’t much higher than the interest rate, it can give you a more accurate idea of what you can expect to earn on your deposits.

Factors affecting money market yields

Several factors will impact how much you earn in a money market account. Here’s what you can expect and how to compare account options:

• Interest rates: Money market account interest rates are variable and can change at any time based on market conditions. With some financial institutions, your rate may vary depending on how much money you have in the account.

• Balance: The account’s interest rate will be applied to your balance, so as your balance grows, so will the amount of interest you earn. Keep in mind that some financial institutions require you to maintain a minimum balance to earn interest.

• Account fees: Some banks charge monthly maintenance fees on their money market accounts, which eat into your yield. In some cases, though, you may be able to get the fee waived if you maintain a certain balance. Many financial institutions also charge an excessive withdrawal fee if you withdraw money more than six times in a month.

As you compare your money market account options, consider whether the accounts you’re considering have a flat or tiered rate structure and how often interest compounds. You’ll also want to look for minimum opening deposit and ongoing balance requirements.

Finally, make sure you know what fees each account charges. If it’s possible to waive the monthly service fee, determine whether you can meet the requirement to earn the waiver.

How to find the highest-yield money market accounts

While it may be tempting to open a money market account with the bank you already have a relationship with, take your time to shop around and compare APYs from multiple sources to ensure you get the best offer available.

For the most part, online banks offer the best money market account interest rates. But you can also find solid options with credit unions and even some traditional banks.

Run a quick search online for the best money market accounts, and several resources will pop up to help you compare the top options available.

In addition to interest rates, fees, and balance requirements, also check for how each account allows you to access your funds.

Tips for maximizing money market yields

Depending on your situation, you may be able to take advantage of different opportunities to make the most of your short-term savings. Here are just a few to consider:

• Automate your savings: Instead of saving money that’s left over at the end of the month, incorporate your savings into your budget to ensure you’re saving the amount you want each month.

• Choose the right account for your balance: If you have a sizable savings balance, you may earn a higher APY with a bank or credit union offering higher yields on larger deposits.

• Take advantage of promotional offers: It’s not common for banks to offer promotional APYs on money market accounts, but still watch out for them as you shop around. Just make sure you read the fine print for the offer to understand how long the promotion lasts and the potential limitations.

• Minimize your fees: If you can find a money market account with a high APY and no monthly fee, you’ll need to make sure you limit your withdrawals. However, if the account you want charges a monthly fee, consider whether you can get it waived each month based on your balance.

Risks and considerations

While money market accounts can be a great place to stash short-term savings, there are some potential pitfalls to watch out for:

• Your earnings won’t outpace inflation: While some of the highest-yielding money market accounts can beat out a high-yield savings account, they typically don’t offer a high enough APY to compensate for inflation. As such, they’re typically not the best option for long-term financial goals.

• Repeatedly exceeding your withdrawal limit could create greater consequences: You may not be concerned about an excessive withdrawal fee here and there. But if you exceed your monthly withdrawal regularly, your bank or credit union may decline your withdrawal requests or even close your account.

• Insurance coverage has limits: Like other bank accounts, money market accounts are safe and typically come with protection in the event that your bank or credit union fails. Both the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) offer $250,000 in coverage per institution, per depositor, per ownership category. That should cover most people, but individuals with high net worths may need to spread out their funds across multiple institutions to maximize their protection.

As you consider these potential risks, shop around and compare other types of savings accounts, including high-yield savings accounts and certificates of deposit, to determine which one is the best fit for your needs.