How Are Money Market Accounts Affected By The Economy?

It is often very hard to predict money market rates, particularly in troubled economic times. Banks typically make their money when they use money deposited in their banks to loan to other customers. With the current economic struggles, many banks have seen a dramatic decrease in consumers and businesses looking for loans. As a result, cash deposited in a money market account isn’t making money for the banks with other loans, and they don’t have the incentive to raise money market interest rates as a result. Money market interest rates aren’t publicly traded like many other credit facilities, therefore it’s more of a personal decision by individual banks that determines current money market interest rates. However, there are some banks that are more aggressive than other banks in terms of setting interest rates for a money market account, in order to entice consumers to do business with their bank. 

There are a number of factors that can affect money market interest rates. The job sector and current unemployment rates can easily affect rates. As more people are out of work, the less that are likely to open any kind of an account. Higher unemployment also affects small businesses. If they’re not hiring worker, they’re not likely to expand their operations, and therefore aren’t looking for money to borrow from banks. As mentioned earlier, banks won’t be inclined to raise interest on a money market account if they’re not able to use the deposited funds to make money for them with other investments. The Federal Reserve also has an impact on current money market rates. As long as the Fed continues to aid banks in offering historically low rates for banks wishing to borrow money from the federal government, they don’t have an incentive to raise interest rates for a money market account. Once the Federal Reserve stops intervening in trying to stimulate bank growth, banks will have more interest in raising their own money market rates. 

The economy certainly has an effect on everything relating to a consumer’s financial decisions. In a thriving economy, interest rates are typically higher for everything, from a home purchase right down to a money market account. However, in tougher economic times, rates are drastically reduced, including those for money markets, in order to stimulate the economy and entice consumers to borrow money at lower rates. It becomes contingent upon the consumer to research as many banks as possible in order to find the best possible interest rates, no matter what type of economy the world is facing.