Ask the Expert: Changes in money market rates
September 09, 2010
Q: I'm shopping for money market accounts, and I have a question. If I choose an account today, how do I know that the bank won't drop its money market rates tomorrow and leave me with less than I could have gotten at another bank?
A: The short answer is, you don't know. Money market rates are variable and subject to change at any time. If you wanted to lock a rate in for yourself, you'd be looking for the best CD rates and would choose a term that would lock those rates in for as long as possible.
However, there are risks involved with locking in a rate--especially this environment. If you lock in a rate, you'd miss out if rates were to rise. With bank rates currently at or near record lows, betting that rates won't rise is a bet against history.
Money market rates, on the other hand, are free to rise with the marketplace, but as you point out, there's also the risk that a bank could unilaterally lower its rates at any time.
Certainly, you don't want to choose a money market account based primarily on a temporary or "teaser" rate, since that is scheduled to expire. For money market rates that aren't introductory teaser rates, you can ask about how long that rate has been in place, to get a sense for the bank's history of changing rates.
Ultimately, though, your strongest protection if a change goes against you is to change banks.
Incidentally, with money market rates, you don't just have to be concerned about your bank lowering your rate. You have to be concerned with them standing pat when the rest of the market is raising rates. So, even if you don't see your rate changing, it is a good idea to keep an eye on money market rates from time to time to make sure yours is still competitive.
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