As Money Market Interest Rates Determined?


A money market account can provide a safe place to set aside liquid assets, which may need to access in the event of financial emergency. You can also use this type of account to hold funds during market volatility. Regardless of why you hold cash in a money market account or money market mutual Fund, it is important to understand how the interest rate paid on the account is defined.

Interest rates on money market Deposit accounts

You can set aside funds in a money market account at a Bank or credit Union, known as Deposit money market account. Though some may compare it to a regular savings account time Deposit money market account ranges that the financial institution has less restrictions on how your money can be invested.

In a Savings account with a Bank or credit Union can only lend those funds to other customers and charging interest on loans. Deposit with the money market account, banks can invest the funds in short-term securities, including certificates of Deposit (CDs), municipal bonds and Treasury bonds (t-notes). In addition, they can also lend money to other customers. Sometimes it provides investors with higher interest rates than traditional savings accounts.

Interest rates for mutual funds money market

Similar to the Deposit account, money market, money market mutual Fund provides a relatively low-risk cash-equivalent liquid assets. Mutual money market funds invest in the same short-term securities as of banks offering Deposit accounts, which may include commercial paper, Treasury securities, municipal bonds and other debt securities with a maturity of less than one year.

Although the interest rate paid to the money market account may not be high relative to other investment opportunities like money market Deposit accounts and mutual money market funds can provide more interest than a regular savings account because the securities of the Bank or mutual Fund company.

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