Posted by If you have a bank account, you have most likely received an advertisement about opening a money market account to get higher interest on your savings. The problem is that the rates are not as good as what you can get from a money market fund. Bank money market accounts have low initial deposit requirements, but you often need to maintain a high balance to get the advertised rate. One bank sent me the following balance tiers and APYs accurate as of 5/8/2023: Under $10,000 to $24,999.99: 0.01%; $25,000 to $499,999.99: 3.85%; $500,000 and above: 0.75%. You only get the 3.85% if your balance is between $25K and 500K. Money market funds are now paying over 4.7% interest. This means that banks are collecting about one percent interest on your money. Most people these days have access to an online brokerage account where they can find better rates with money market funds.
Only someone without a brokerage account would even consider a bank money market account. Unless you really like the bank and have over $25K that you don’t know what to do with. Banks make money by charging service fees and getting interest on loans. They take your money and loan it to others or they put it in treasury bonds. Back when a brokerage account was only for people who could afford a money manager, I used to put my money in local banks that had the best certificate of deposit rates. They called them CD specials and I would put $10K in and let it sit for 6 to 12 months. Those were the days when you had to physically go into the bank to make a deposit to open a CD. You can do all of that online now. But why would you when you can get better rates elsewhere. I don’t know what the future is for banks. They are a good backup for money, in case the Internet has a major security crisis. Bitcoin has gained over 60% in the first four months of 2023. Like a lot of older Americans, I don’t trust crypto currency. But I think it would really take off if there was some kind of deposit insurance for digital currency and you could actually use it to buy stuff.