How Are Interest Rates on Money Markets Determined?
Money market accounts are a mix between a checking and savings account. Deposits are invested in short term securities to provide liquidity to the financial markets. Interest rates on these accounts depend on a number of important economic factors.Short Term RatesThe Federal Reserve influences short term interest rates in financial markets to achieve long term stability. Whatever action the Fed takes may affect interest rates on money markets.BanksThe Fed’s rate adjustment affects the cost for banks to borrow from each other. Lower rates mean banks may borrow at a cheaper price and are likely to pay less interest on your money market account. If rates increase, you may earn more interest during this time.BalanceThe balance in your money market may also affect the interest rate you earn. To attract more deposits, banks may offer higher rates on larger balances.TimeThe challenge for banks is to keep deposits in your money market account. To limit outflow, banks may limit withdrawals to j
