If you are wondering how money market interest works, you are not alone. There are many ways in which this interest can be paid and educating yourself on this can help you find and negotiate the best money market interest for your money deposited.
By exploring methods these earnings are calculated and paid, you will be able to approach the financial institution with a clear understanding of the product and what your expectations are in earnings.
An important fact to understand is that most of the time money market interest is paid based on balance tiers. Each of these balance tiers will be assigned a rate for which the customer is paid. The rate may be paid on the entire balance as long as the balance keeps the account in that tier, or the money market interest rate may just be paid on the balance in the tier, with other rates applying for money in other tiers. An example would be a rate for the first $10K, a separate rate for over $10K up to $50K, then a third rate for any balance over $50K. Another way would be to pay the rate applied to the over $50K balance used in this example for the entire account balance so long as the balance stay above the $50K tier. With either of these examples, the financial institution is rewarding the depositor with higher money market interest for keeping higher balances in the account. This is a ideal situation for a depositor that continues to add to and grow their balance.
Money Market Interest For You
It is also important to know how often the money market interest is credited to your account. The more often it is credited to the account, the more you can earn from interest compounding. The most common way this is done is for the money market interest to be credited once a month. It is important to understand this when comparing multiple banks, as it will affect the amount of interest earned.
If you understand these simple facts you will be able to accurately compare deposit options and easily determine the best money market interest scenario for your excess liquid funds. Comparing rates and the way interest is paid will allow you to maximize your earnings on your deposits. Without asking questions, you could be left with a product you do not understand and a rate that does not pay you what your deposits are worth. Always remember to ask the banker for a higher rate. The worst that can happen is you will be told no and be at the money market rate which you were satisfied with enough to bring the bank your money.