Most money market accounts pay interest once a month, credited on the closing date of your statement cycle rather than the first or last day of the calendar month. Behind the scenes the bank is usually calculating your earnings every day, but that money only lands in your available balance when the cycle closes. Federal law does not lock banks into any particular schedule, so some accounts credit quarterly or even daily instead. Your account disclosure spells out which applies to you.
When the Interest Actually Lands in Your Balance
The date interest appears in your account depends on when your statement cycle closes. If yours closes on the 15th, that is when the bank totals what you earned since the previous cycle and adds it to your balance. Before that date the interest exists only as an internal calculation. You can watch it grow on your dashboard, but you cannot spend it until the crediting event happens.
Two clocks run on the account, and they are easy to confuse. Compounding is how often the bank calculates fresh interest on top of interest you have already earned. Crediting is how often the bank actually deposits that interest into your available balance. Most money market accounts compound daily and credit monthly. With daily compounding, each day’s calculation uses your principal plus any interest computed the day before, so by the crediting date you have earned a small amount of interest on interest. The account’s Annual Percentage Yield reflects that full compounding effect, which is why APY is the fair way to compare two accounts even when they compound on different schedules.1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
Regulation DD, the rule that implements the Truth in Savings Act, does not require banks to compound or credit at any specific frequency. Monthly crediting is simply the common practice; any other schedule is legal as long as the bank discloses it.2Consumer Financial Protection Bureau. 12 CFR Part 1030 (Regulation DD) – 1030.7 Payment of Interest
How the Bank Calculates What You Earn
Regulation DD lets banks use one of two methods to compute your interest, and each handles mid-cycle deposits and withdrawals differently.2Consumer Financial Protection Bureau. 12 CFR Part 1030 (Regulation DD) – 1030.7 Payment of Interest
- Daily balance method: the bank applies a daily rate to the full principal in the account that day. Deposits and withdrawals change the calculation immediately.
- Average daily balance method: the bank adds up your end-of-day balance for every day of the period, divides by the number of days, and applies a periodic rate to that average. A large deposit late in the cycle raises your average less than the same deposit made early on.
Either way, the bank must calculate interest on your full principal for each day or period, not on a portion of it. Your disclosure names the method under a heading like “Balance Computation Method.”1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
Tiered Rates
Many money market accounts pay higher rates at higher balances, and there are two ways banks apply the tiers. Under the full-balance method, once your total crosses a threshold the higher rate applies to the entire balance: on $8,000 in an account where the rate above $5,000 is 5.50%, you earn 5.50% on all $8,000. Under the split-tier method, each tier’s rate applies only to the portion of your balance within that range, so you might earn 5.25% on the first $2,500 and 5.50% on the remaining $5,500. Split-tier disclosures must show a range of APYs so you can see the low and high yields at different balance levels.1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
Minimum Balance to Earn Interest
Some accounts require a minimum balance before any interest accrues. If you drop below it, the bank can stop calculating interest for the days you fell short (under the daily balance method) or for the entire cycle (under the average daily balance method).2Consumer Financial Protection Bureau. 12 CFR Part 1030 (Regulation DD) – 1030.7 Payment of Interest The minimum needed to earn interest is not always the same figure as the minimum needed to waive a monthly maintenance fee, so check both.
Your Rate Can Change Between Payments
Money market account rates are almost always variable. Regulation DD generally requires 30 days’ written notice before a change that would reduce your APY or otherwise worsen your terms. The important exception: changes tied to an index or market benchmark do not require any advance notice.3eCFR. 12 CFR 1030.5 – Subsequent Disclosures Because virtually all money market accounts are variable-rate, your rate can drop with no warning. Checking periodically is the only reliable way to know what you are currently earning.
Finding Your Account’s Exact Schedule
Every bank must give you a Truth in Savings disclosure before you open a money market account.1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD) Two sections answer the frequency question directly. The interest compounding and crediting section tells you how often the bank compounds and how often it deposits earnings. The balance computation method section identifies whether the daily balance or average daily balance approach applies.
If the paper copy is long gone, most banks post disclosures in the legal or account-settings area of their online portal. On your monthly statement, look for a line item called “Interest Paid” or “Interest Credit.” That entry shows the dollar amount added and the date it posted, which is the proof that a cycle has closed and the money is spendable.
Timing a Closure or Withdrawal
If you close a money market account before the next scheduled crediting date, you can lose whatever interest has accrued since the last payment. Federal rules let the bank keep that accrued interest as long as the forfeiture policy was in your original account agreement.1eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
Withdrawing funds without closing the account is different. The bank may delay paying accrued interest on the withdrawn amount until the next scheduled crediting date, but it cannot skip paying it entirely.2Consumer Financial Protection Bureau. 12 CFR Part 1030 (Regulation DD) – 1030.7 Payment of Interest If you know you plan to close, doing it right after a crediting date leaves nothing on the table. Your most recent “Interest Paid” entry tells you where in the cycle you are.
Money Market Accounts Are Not Money Market Funds
A money market account and a money market fund sound alike and are different products. Everything above applies to money market accounts, which are deposit accounts at a bank or credit union insured by the FDIC or NCUA up to $250,000 per depositor, per institution, for each ownership category.4FDIC. Understanding Deposit Insurance A money market fund is a mutual fund that invests in short-term debt, is not FDIC-insured, and is regulated by the SEC. Funds typically distribute earnings as dividends, often monthly, but the timing and disclosure rules come from the fund prospectus, not from Regulation DD.
Taxes on the Interest You Receive
Interest earned in a money market account is ordinary taxable income and is taxed at your regular rate.5Internal Revenue Service. Publication 550 (2024), Investment Income and Expenses Your bank must send you a Form 1099-INT if it paid you $10 or more in interest during the year.6Internal Revenue Service. About Form 1099-INT, Interest Income That threshold comes from 26 U.S.C. ยง 6049.7GovInfo. 26 USC 6049 – Returns Regarding Payments of Interest
Interest below $10 is not tax-free. No 1099-INT will arrive in the mail, but the IRS still requires you to report all interest income on your federal return.8Internal Revenue Service. Topic No. 403, Interest Received The exact amount is in your year-end statement or online transaction history.