When Interest Rates Start to Decline, You May Want to Have Your Money Here

Inflation cooled for the 10th consecutive month in April, elevating the price of consumer goods by 4.9% year over year. At the same time, the Fed also raised its federal funds rate to a range of 5% to 5.25% at its last meeting, reaching the highest rate we've seen since it hovered at 5.25% between June 2006 and August 2007.

This marks a unique moment for savers. At a time when interest rates are high and inflation appears to be weakening, savers can outpace inflation with the APY on bank products, such as a high-yield savings account or certificate of deposit (CD).

But interest rates aren't going to stay high forever. And for those who don't want to lock their money in a CD, there might be a better place to put your money before rates fall -- a money market account.

Why you might want a money market account

When the Fed hikes rates down, it could open opportunities in the stock market, especially for value investors hunting for discounted stocks. That means, you might want money in a savings account for easy access.

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
CIT Platinum Savings APY 4.85% APY for balances of $5,000 or more Rate info 4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings On CIT's Secure Website. Member FDIC.	APY 4.85% APY for balances of $5,000 or more Rate info 4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY	Min. to earn $100 to open account, $5,000 for max APY
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of September 10, 2024 Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of September 10, 2024	Min. to earn $0

A money market account (MMA) could be that savings account. MMAs combine the flexibility of a checking account with the generous APYs of a high-yield savings account, helping your money grow without locking it into a CD. Most MMAs come with checks and debit cards, and you're allowed up to six penalty-free withdrawals or transfers per month by federal law.

Better yet, the APYs are competitive. These days, it's not hard to find an MMA with a rate comparable even to some of the best CDs. For example, the UFB Portfolio Money Market Account has an APY of 5.15% and will waive the $10 monthly fee if you maintain a $5,000 balance. That's only a little less than the 3.00% APY on a 6-month CIT Bank CD.

Money market accounts do have some restrictions

Even though MMAs have fewer restrictions than CDs, your money might still have some limitations. The following are typical constraints you'll find on MMAs:

• Withdrawal and transfer limits: Federal law restricts most withdrawals or transfers to six per month, which typically include electronic transfers and check withdrawals. That said, withdrawals made at a bank -- or ATM -- don't usually count toward this limit. After six eligible withdrawals, your bank could start charging you a withdrawal fee.
• Minimum deposits. Some banks will give you the highest APY on offer only if you deposit over a certain threshold, such as $500.
• Minimum balance. In addition to a minimum deposit, your bank may require you to keep a certain amount of money in your MMA at all times. This can keep your interest rate in place and prevent you from paying monthly fees.

If you can follow these restrictions, an MMA would be a great place to store some cash right now. Of course, you don't have to put all your money into these accounts. Diversification is important, and it could be wise to divide your savings among other vehicles, like CDs and high-yield savings accounts. But the easy access of MMAs make them ideal for cash you'd like to invest later, especially if you'd like to take advantage of stocks when the Fed reverses course.