For US financial firms, I find the minimum interest rate that they offer for various checking/savings accounts/money market funds is 0.01%.
Out of curiosity, why don't they just pay 0%? Why is 0.01% often the minimum??
Why 0.01% and not 0% interest on money market funds?
Re: Why 0.01% and not 0% interest on money market funds?
Money market funds return whatever the market does. So if it stays at 0.01% and never drops to zero, that could be because the Federal Reserve is targeting short term interest rates that way. In fact, I've always understood the reason the rate is "zero to 0.25%" rather than just zero, is particularly because of the need to not wreck money market funds.
edit: I should add it might not quite be that way, as when interest rates are extremely low and drop below the expense ratio, the fund provider might be subsidizing the fund, and might subsidize just enough to 0.01%
As for bank savings accounts, the rate is indeed whatever the bank decides to pay. I wonder if a non interest bearing savings/money market account might violate Truth in Savings or a similar law in some way.
edit: I should add it might not quite be that way, as when interest rates are extremely low and drop below the expense ratio, the fund provider might be subsidizing the fund, and might subsidize just enough to 0.01%
As for bank savings accounts, the rate is indeed whatever the bank decides to pay. I wonder if a non interest bearing savings/money market account might violate Truth in Savings or a similar law in some way.
Re: Why 0.01% and not 0% interest on money market funds?
I've never understood it either. I think it's funny how BofA highlights the whopping 0.05% interest they offer platinum honors clients on savings accounts.
Re: Why 0.01% and not 0% interest on money market funds?
Google "Verizon math". Lots of people don't understand units and will read 0.01% as 1% or simply not understand what it means at all and just see that the bank is telling them that they will get some interest, which sounds nice.
Re: Why 0.01% and not 0% interest on money market funds?
A surprising portion of the population will say, almost with pride and certainly not shame, "oh, I don't DO fractions."
The same way they would say "I don't smoke" or "I don't curse." Like it's not something you believe in incorporating in your life.
Don't even get them started on the "decimals."
Now there is a push to make the country even more mathematically illiterate because the fact that it is hard is offensive to some people. We will see more of this sadly. Plenty of catastrophic errors have been caused in history because of decimal point errors. In medicine, a 10-fold error in dosing will often kill somebody.
Re: Why 0.01% and not 0% interest on money market funds?
If they pay 0.01%, they can call it an interest bearing account. Sounds better than a non interest bearing account. I don't know for sure but I would guess it is a marketing angle.