$10,000 high-yield savings account vs. $10,000 money market account: Which earns more after the Fed cut rates?

2 weeks ago 4

In an interest rate environment in which rates are slowly but surely declining, savers may be inclined to lock their money away in an account with a fixed interest rate. With a certificate of deposit (CD) account, for example, the rate the account is opened with will remain the same until the account matures, allowing for predictable interest earnings and protection from rate cuts in the future. But CDs also require savers to keep their money untouched in the account for the full term to secure that end result.

Unfortunately, the reality is that many savers will need to maintain access to their funds, especially in today's unique economic landscape. Thankfully, there are two alternative accounts to consider that come with rates competitive with CDs, neither of which will require foregoing access to your money: high-yield savings and money market accounts. And although a series of interest rate cuts via the Federal Reserve has resulted in lower rates on both accounts, they remain attractive for savers now, especially for those looking for a home for a five-figure amount like $10,000.

Between a $10,000 high-yield savings account and $10,000 money market account, then, which will technically earn more now, after the Fed cut rates? That's what we'll calculate below.

See how much interest you could be earning with a top high-yield savings account now.

$10,000 high-yield savings account vs. $10,000 money market account: Which earns more after the Fed cut rates?

Both high-yield savings and money market accounts have variable interest rates that can make it difficult to determine the exact interest-earning capability of each, particularly over an extended period of time. But by closely comparing rates and returns now, savers can better determine which account type may be suitable for their needs and goals. Here's how much each can earn now, calculated using today's top rates, various lengths and the assumption that the rate for each account will remain constant:

$10,000 high-yield savings account at 4.20% after three months: $103.39
$10,000 money market account at 4.25% after three months: $104.60
Difference between accounts: The money market account earns $1.21 more.

$10,000 high-yield savings account at 4.20% after six months: $207.84
$10,000 money market account at 4.25% after six months: $210.29
Difference between accounts: The money market account earns $2.45 more.

$10,000 high-yield savings account at 4.20% after one year: $420.00
$10,000 money market account at 4.25% after one year: $425.00
Difference between accounts: The money market account earns $5.00 more.

$10,000 high-yield savings account at 4.20% after 18 months: $636.57
$10,000 money market account at 4.25% after 18 months: $644.23
Difference between accounts: The money market account earns $7.66 more.

$10,000 high-yield savings account at 4.20% after two years: $857.64
$10,000 money market account at 4.25% after two years: $868.06
Difference between accounts: The money market account earns $10.42 more.

In all five examples, the money market account earns slightly more than the high-yield savings account. And with the money market account coming with check-writing features that the high-yield savings account doesn't, it could be the right account type for many savers. Just remember that the more competitive rates on either account type are typically found with online banks. So consider starting your search for accounts there if you're ready to earn more on your $10,000.

Shop for high-yield savings accounts online today.

The bottom line

A $10,000 money market account is slightly more profitable than a $10,000 high-yield savings account now. But that dynamic can easily change, especially over an extended period of time. So evaluate both carefully now and, if unsure, consider splitting your funds between both to exploit each account type's unique rates and features. If you ultimately decide one is better than the other, you can move that money into the preferred account or revisit your CD account options at that time, too. Just don't leave much money in a traditional savings account now, which comes with an average rate many times lower than what can easily be found with high-yield savings, money market and CD accounts currently.

Edited by Angelica Leicht

Read Entire Article