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What is the money market?


money market

Why the money market is one of the most important financial markets in Australia.

The Reserve Bank of Australia (RBA) defines the money market as, “The market that deals in short-term discount securities such as Treasury notes, bank bills and promissory notes.”

What is the money market?

The money market is where major institutions such as the RBA, banks like Westpac and the Commonwealth Bank, mutual societies, superannuation funds and large corporations trade with each other in very large amounts of money.

The money market, as the name suggests, is a source of funding for banks and institutions. The cost of funds on the money market plays a role in setting consumer interest rates.

Money market rates

High-level interest rates on the money market are based on the cash rate set by the RBA. The RBA determines the price of cash, which then determines the cost of short-term lending between major financial institutions on the money market. This subsequently has a flow on effect to the general public.

The role of the Reserve Bank’s Domestic Markets Department is to keep money market interest rates as near to the official cash rate as possible. The cash rate is one of the major factors influencing the price of consumer loans and returns on deposit investment products, and it basically underpins the economy of Australia.

There are a couple of factors that influence the end figure on money market rates, primarily:

  • How much financial institutions think they can make off the investment they’re selling over the short term, and
  • The availability of funds

One of the tasks of the Domestic Markets Department is to influence the availability of funds on the money market to keep money market rates in line with the cash rate.

Interest rates on money market products available to the general public (for example, money market term deposits and money market cash investment accounts) are based on what happens on the wholesale money market.

Keep in mind the money market is a short-term investment market for large financial institutions. Wholesale money market interest rates change much more regularly than the rates offered by financial institutions to retail investors through money market cash investments and term deposit investments.

Your guide to cash management accounts here.

Money market accounts

Money market investments have traditionally been for wholesale investors only. Wholesale investors are typically financial institutions or individuals with a wealth of capital and investment experience. This is opposed to retail investors who are average everyday Australians.

What are the features of a money market account?

Money market accounts have the following features:

High initial investment

These accounts require a high opening deposit or commitment.

Cash management accounts

These give you on-call access to funds.

Term deposits

Money market term deposit investments require a commitment of months through to years.


Cash management accounts and term deposit accounts are fee-free.

Money market rates

A money market account pays interest in line with current money market rates. Investments such as cash management accounts pay a tiered rate of interest. The more money you have in the account, the higher the interest rate.

Account access

Funds are accessed by a linked cheque book, internet banking or a linked transaction account. Market linked accounts do not typically provide debit card access.

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