One Big Reason Why Money Market Rates Are Low
March 11, 2010
Getting the best interest rate on a money market account is a pleasurable experience. This way, you know that your money is making money.
But what causes money market rates to either rise or fall?
Not One Reason, But One Reason Very Important
Money market accounts are typically the province of a bank customer that has some money saved, but also does a significant amount of spending. In other words, a bank customer that already has a savings account, checking account, and maybe a CD or two.
Part of the appeal of offering money market accounts, from a bank's perspective, is to develop a relationship with a customer that has a need for banking services. Giving a good rate on a money market account is a method for getting a good customer interested in your bank.
More than anything, though, banks look at these deposit accounts in terms of numbers. Namely: banks must evaluate how much return they can get on these funds that are being deposited.
Can Banks Still Make Tons of Money?
Before the crash of 2008, banks and the financial sector in general--defined broadly to include such entities as hedge funds--were among the most profitable companies in the world. Then, suddenly, all those profits vamoosed when the mortgage market became a naked emperor.
The question now is, and it's arising every day: how much money can and should banks be making, relative to the services that they provide? Everyone has a comment on the topic, it seems.
Meanwhile, for the banks, until they know the answer to the question of what rate of return they can expect to receive for putting money market and savings account money to work, high money market rates are not in the cards.
feb
30 May 2011 at 10:36 am
They have held the interest rates low to prop up the stock market. That way investors will not put money in the bank, prefering stocks. Either way the gains won't cover the inflation that is occuring in the U.S. The government has relied on the taxpayers to cover their debts and mismanaged spending. The housing bubble was caused by immigrants coming into the u.s. They have to live somewhere. 5000 a month crossing into the u.s. 60000 new homes a year. But with the support for illegal imigration it has hit the taxpayer extremely hard to support unskilled labor without productive jobs or the cheap labor working without paying taxes ,and sending the money they make back to support their famlies at home. We need our troops back at home to secure our borders and protect us from the Senate.