Money Accounts

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One factor to consider when you have a lot of money on your hands it to put them into a single account to take advantage of better rates that are available at that bracket.

In this example we’ll look at money market account data as of June 12th, 2009. There is no magic to that date, and actual money market rates will vary from day to day. However, what is important here is the relationship among the rates, and specifically, the relationship between rates on accounts with low or no minimums, and those with higher minimum account sizes.

A key element in this discussion is the increase in the FDIC insurance ceiling to $250,000 per depositor per institution. In the midst of the banking crisis last autumn, Congress raised this limit from $100,000 to $250,000 through the end of 2009, and then this past May it extended the $250,000 ceiling through the end of 2013.

In the context of this discussion of the relationship between higher account minimums and higher money market rates, this higher ceiling means that depositors have more options for pooling their assets while still staying within the protection of FDIC insurance. Learn about money accounts.

Large Accounts Earn the Highest Money Market Rates

On average, larger accoutns mean better rates. Here were the average Annual Percentage Yields (APYs) for money market accounts at several different minimum account tiers:

$0 or $1 minimum — average APY of 1.49%
$10,000 minimum — average APY of 1.55%
$25,000 minimum — average APY of 1.57%
$50,000 minimum — average APY of 1.71%
$100,000 minimum — average APY of 1.71%
$250,000 minimum — average APY of 1.86%
In short, the benefit of opening a larger account is fairly systematic–there is an additional incentive at just about every step up the account size ladder. Interestingly, on average there is no benefit for moving up from a $50,000 minimum to a $100,000 minimum. However, the biggest jump comes at the next step — 16 basis points for moving up to a $250,000 account. This lends added significance to the increase in FDIC insurance.

Note that while opening a $250,000 account would mean that any interest you subsequently earn would be above the FDIC ceiling, you could limit that risk by periodically withdrawing the interest and depositing it elsewhere. Or, you could qualify for a higher insurance ceiling by opening a joint account.

All this talk about basis points can sound trivial at times, but if you step back and look at the big picture, you see that the average rate for $250,000 accounts is 37 basis points above the average for accounts with little or no minimums. This would translate to $925 per year on a $250,000 account.

Shopping for the Highest Money Market Rates

Remember though, the benefits of moving up in size only apply if you find accounts that reward you for that. The good news is that the above figures are only averages. By actively shopping around, you could do even better.