Hunting for the best money market rates might seem more satisfying when rates are up around four or five percent, but it is more important now - when average rates seem barely visible.
To be precise, money market accounts were paying an average rate of 0.21 percent as of late April. 21 may be a lucky number in blackjack, but 21 basis points won't make anyone feel like a winner.
At the same time, the best money market rates available are up over 1 percent. That may still seem anemic, but think of it this way: you can find money market rates that are five times the national average. When average rates were at four percent, you certainly had no chance of finding a rate at twenty percent. So, in a sense, the value added from smart rate shopping has never been higher.
With that in mind, here are four tips for tracking down the best money market rates:
- Go to extremes. There are many reasons why money market rates are so low right now, but one of the most fundamental is that the loan business has been weak. If banks can't make profits by lending money, then they can't afford to pay high money market rates to bring in deposits. That's the general condition of the industry, but banking is a very fragmented business, so there are often exceptions to any given industry trend. When looking for these exceptions, try checking out two extremes - online banks on the one hand, and local community banks on the other. For different reasons, these types of institutions may have business models that differ from the industry norm - and thus may be offering money market rates that are also an exception.
- Use the Internet. Here's a test: picture a bank. If the mental image that occurred to you is of a building on the main street of town, then you might be limiting yourself in how you think of banks, and how you look for banking products like money market accounts. Use online tools to search for the best money market rates, so you can be sure of seeing the whole field, not just what happens to be in front of you.
- Look for consistency. Money market rates are not guaranteed for any period of time, so you need to find a bank that offers competitive rates consistently, rather than a high rate that may be here today and gone tomorrow.
- Pool your resources. Money market accounts tend to pay up for large deposits - more so than savings accounts or CDs. If you can afford a so-called "jumbo deposit" - an account of $100,000 or greater - then you may benefit from pooling that money into one large account. Remember, the FDIC insurance limit is now $250,000, so jumbo accounts offer more protection than in the past.
Low money market rates don't have to be like the weather - something that everyone complains about, but nobody does anything about. Finding the best money market rates will ensure you've made the best out of a difficult situation, and over time the difference will add up in your account balance.