Money market account: Interest rates and everything else you need to know
- Money transfer
Business money market accounts offer companies a strategic way to optimise the use of idle funds, providing a hedge against inflation while generating additional income streams to enhance cash flow. In the following article, you’ll find key details about money market accounts, including their interest rates, functionality, and practical alternatives.
What is a money market account?
A money market account is a financial tool designed to invest surplus funds with a bank while earning competitive interest rates. Typically, these rates are higher than those offered by standard checking accounts, as the deposited funds can be utilised by the bank for investment purposes.
However, money market accounts usually do not allow direct transactions such as transfers or participation in payment systems. Additionally, debit or credit cards are not provided for this account type. Instead, all incoming and outgoing transactions are managed through a linked reference account, often a traditional checking account.
The most popular money market accounts include instant access and term deposit accounts:
- Instant access account: A flexible account where the money deposited is available at any time. Interest rates can vary and are usually credited daily or monthly.
- Term deposit account: An account where the money is invested for a fixed term at a fixed interest rate. During this term, the money is usually not available, but the interest rates are often higher than for instant access accounts.
Overview of classic money market accounts
The following sections provide a detailed look at the benefits and drawbacks of instant access and term deposit accounts.
Instant access account
An instant access account offers a flexible investment solution, allowing daily access to deposited funds while earning interest on the account balance. This type of account is particularly well-suited for companies seeking secure investments while maintaining the ability to access their capital on short notice.
Interest rates for instant access accounts are variable and often tied to prevailing market conditions. However, they tend to be lower compared to long-term investment options like fixed-term deposit accounts.
Additionally, interest is typically paid only in the domestic currency. As a result, businesses holding unhedged foreign currencies may not benefit from this account type.
| Advantages | Disadvantages |
|---|---|
| Daily availability | Interest rates can fluctuate |
| Often no minimum investment | Mostly lower interest rates compared to term deposit accounts |
| Flexibility of use | No tax allowance on interest |
| No account management fees | No participation in payment transactions, no check card |
| Deposit insurance | No interest income on foreign currencies |
Note: In Switzerland, investment income is subject to the federal withholding tax, currently set at 35%, with an exemption threshold of CHF 200.
Term deposit account
A term deposit account is an investment account where a specified amount of money is deposited for a set period at a fixed interest rate. The term typically ranges between one and twelve months.
During this period, the deposited funds are usually inaccessible. However, this is offset by higher interest rates compared to more flexible investment options. This type of account is particularly suited for companies looking to invest their money securely and under predictable conditions over the long term.
As with instant access accounts, fixed-term deposit accounts do not offer payment transaction features such as transfers or the use of debit cards. Foreign currencies do not earn interest, and any interest income is also subject to taxation.
| Advantages | Disadvantages |
|---|---|
| Fixed interest rates | No access during the term |
| Predictable returns | Early termination often not possible |
| Higher interest than instant access account | No tax allowance on interest |
| Selectable investment periods | No participation in payment transactions, no check card |
| No account management fees | No interest income on foreign currencies |
| Deposit insurance | Minimum deposit often required |
Hoch much interest can you earn from a money market account?
Currently, investors can earn up to 1.6% interest on their term deposit account for a 6-month investment period (as of July 2024). In general, the longer the investment period, the higher the interest rate. This is because banks gain greater planning security when funds are tied up for a longer duration.
In rare cases, however, banks may offer lower interest rates for longer terms if they anticipate that rates will decrease in the future. In such scenarios, banks aim to avoid paying higher interest over an extended period.
For instant access accounts, the interest rates are significantly lower. However, they allow businesses to access their funds on a daily basis.
Who is a money marekt account suitable for?
A business money market account is particularly suitable for companies with cash reserves seeking a secure investment option to protect their capital from inflation while maximising income. Entrepreneurs who open a business account can also put their capital to work from day one.
However, a limitation of money market accounts is that they are typically restricted to the local currency. This means internationally active companies with foreign reserves may not fully benefit.
Additionally, funds deposited in long-term agreements are not accessible, significantly reducing the flexibility of a money market account compared to a standard checking account. As such, businesses must plan carefully to avoid cash flow shortages due to insufficient liquid reserves.
Conclusion: amnis offers more than a classic money market account
amnis stands out as a Swiss payment provider that facilitates swift and economical international payments through a versatile multi-currency account. Recently, the company has introduced cashback interest rates for foreign currency accounts, offering a unique benefit for businesses managing foreign currency exposure.
The annualised balance cash back interest rate differs depending on the currency (List: September 2024 balance cashback rates):
- EUR: 1.33%
- USD: 1.78%
- GBP: 1.95%
- CZK: 2.33%
- CHF: 0.00%
Updated rates can be found here: Interest on business account
Unlike long-term money market accounts, amnis ensures clients have uninterrupted access to their funds. This includes easy access to foreign currencies worldwide, facilitated by a multi-currency debit card without transaction or foreign exchange fees.
Additional features, such as a virtual IBAN account, empower businesses to send and receive EUR and GBP payments locally in their name. This makes amnis the ideal option when it comes to international business payments for SMEs.
Discover how amnis can complement your financial strategy: