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What are Money Rates?

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  • Written By: Paul Woods
  • Edited By: Jacob Harkins
  • Last Modified Date: 18 July 2018
  • Copyright Protected:
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    Conjecture Corporation
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The term money rates typically refers to the rate of interest a bank will pay holders of demand deposit, money market or checking accounts or on a certificates of deposit. Rates vary, usually depending on a combination of the type of account held, current conditions in the wider financial markets and action by a nation’s central bank. Money rates also can refer to the difference between the value of one nation’s currency when compared with another.

Banks typically earn a profit by accepting deposits from customers, paying interest on the deposits and loaning out or investing that money at a higher rate of interest. In most countries, banks are regulated by the central government and required to have a predetermined percentage of deposits on hand at the close of each business day. It is common for banks to be unable to meet that requirement and to borrow the difference from the central bank. The rate of interest charged by the central bank to other banks is a key factor in setting the money rates consumers receive. Consumer money rates typically move up or down with central bank rate.

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The type of account held also can affect the money rate. In general, the greater access the account holder has to his or her funds, the lower the rate. Funds in a checking account typically must be available in full at any time, and so checking accounts often have no or very low rates. For a simple savings account, also known as a demand deposit account, the account holder can expect his or her money to be available in full within a regulated time period of demanding it and can expect a relatively low rate as well, but higher than checking accounts.

Accounts with more restrictions usually carry a higher rate. Money market savings accounts usually offer higher rates than demand deposit accounts, but typically there are minimum balance requirements and a minimum number of monthly withdrawals allowed without cost. For certificates of deposit, in which the account holder guarantees to leave the money in the bank for a specific period of time or face a penalty for early withdrawal, the rate is higher still.

The rates of exchange for currencies among nations also are called money rates. The stronger a nation’s economy is, the stronger the demand for that nation’s currency typically is and that drives its value up in relation to the currencies of other nations. These currency exchange rates are changing continually.

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