What will be the best Money Market Accounts in 2024?
A money market account (MMA) may be an excellent savings option if you’re looking for a safe, accessible place to keep funds while earning a solid interest rate.
Although MMAs often have transaction limits and higher initial deposit requirements than traditional savings accounts, they offer a convenient way to save for specific goals. You might use an MMA to set aside money for a wedding, establish an emergency fund or plan for a dream vacation.
As the Federal Reserve began to raise interest rates in 2022, savers started to see significant yields through money market accounts. However, with the new year right around the corner, many are wondering whether they will continue to earn great returns from the best money market accounts in 2024.
Outlook for money market accounts in 2024
Money market account rates tend to rise and fall along with the federal funds rate. While nobody can predict exactly how money market accounts will perform in 2024, looking at how the Fed will adjust its benchmark rate may be a good place to start. The federal funds rate is the interest rate banks charge each other for overnight loans, and it influences rates for bank accounts, loans and credit cards.
According to Massud Ghaussy, chartered financial analyst and senior analyst at Nasdaq IR Intelligence, a consultation platform for investors, the Fed won’t likely hike rates any further due to cooling inflation.
“The markets are currently pricing in a 4% chance of a rate hike,” Ghaussy said. “And a 42% chance of a rate cut in March 2024.”
More than six 25-basis-point rate cuts are expected by December 2024, he continued. That would equate to a drop of 1.5%.
“Elections around the corner, political pressure and weakening economic fundamentals along with calls for a recession in 2024 are serving to be the primary drivers behind the market’s expectations for rate cuts,” Ghaussy said.
Sunrise Banks chief financial officer Kevin Valois agreed that the Fed is likely done raising rates and forecasted cuts in 2024.
“Current economic factors indicate a slowing economy and a Fed that will likely be on pause as they monitor future economic performance,” Valois said. “I tend to believe that the fed funds rate will decrease in the third or fourth quarter of 2024. We’ll likely see two to three overall decreases.”
How high could money market rates go in 2024?
If the Fed cuts interest rates next year, then financial institutions will likely offer lower yields on money market accounts.
“Interest rates on money market accounts follow the fed funds rate very closely,” said John Cunnison, chartered financial analyst and chief investment officer at Baker Boyer Bank. “If the next move is lower sometime next year, money market interest rates will likely begin to decline.”
The average money market rate is 0.63%, according to November data from the Federal Deposit Insurance Corp. (FDIC). However, the best money market accounts are offering about 4.00% to 5.00% annual percentage yield (APY) right now.
“It is possible, and even likely, that money market rates have peaked for this Fed hiking cycle,” Cunnison said. The probability that rates will fall by the end of 2024 is rising, he added.