A high yield money market account is a savings account that pays an interest rate which is higher than the national average savings account rate. High-yield rates are usually one- or two-percent higher than the average rate offered by banks and credit unions. High yield money market rates are advertised as the annual percentage yield (APY).
The APY offered on a money market savings account is a variable rate. A variable interest rate can be changed by the financial institution at any time without notice. To earn the advertised APY, a consumer must leave the initial deposit and any accrued interest in the account over the course of a year. This allows the interest added to the account to also earn interest. This is known as compounded interest.
A minimum balance is sometimes required to open a high yield money market account and earn the stated APY. Accounts with balances that fall below the required minimum balance may earn a lower APY, or no interest at all, in a given period. Any withdrawals or service fees charged to the account will also lower the interest earned on the account.
Online banks offer some of the highest money market account rates. These entities do not have physical branches, so all transactions are completed over the Internet, on the phone, or by mail. Low overhead costs add to online banks' ability to pay higher interest rates on a high yield money market account. These banks usually charge fewer fees also. To open an online money market account, the customer can transfer funds from another bank account or mail a check to the bank.
Generally, a high yield money market account can be closed at any time without penalty. The timing of interest posting should be considered when closing an account. If the interest for the current month has not been posted, some banks will prorate the interest due and add it to the account balance before the account is closed. Other banks do not prorate interest payments, and any interest not posted to the account could be lost.
When choosing where to open a high yield money market account, the consumer should confirm that the bank or credit union has deposit insurance. Deposit insurance protects the customer in the event the financial institution fails and closes down. Banks are usually insured by the Federal Deposit Insurance Corporation (FDIC), and credit unions are insured by the National Credit Union Association (NCUA). Financial institutions may use private deposit insurance instead of these federal options.