Money market accounts can be a good place to save money because the FDIC insurance protects account owners from the loss of deposited funds if the insured bank fails. Classified as savings deposit accounts by the Federal Reserve and subject to monthly withdrawal limits (see note), money market accounts are a popular choice for storing money because they offer higher interest rates than traditional savings accounts. This type of account also provides convenient access to funds, similar to a checking account.
Are money market accounts safe?
You may wonder, can you lose your money in a money market account? Money market accounts are considered a safe place to save your money because they are insured by the FDIC for up to $250,000 per depositor, in each ownership category, at any one insured bank. Essentially this means if your bank fails, up to $250,000 of your funds are protected.
To ensure your money is safe, it’s important to understand the limits of FDIC insurance and your money market account risk. If your total balance at one bank is more than $250,000, some of your funds could be at risk. Instead, it’s a good idea to distribute your funds at more than one financial institution so no more than the maximum insured amount of $250,000 is in any one account at a single institution.
While money market accounts are a secure way to save money, they could hold the risk of lost opportunity as their rates fluctuate and are not guaranteed. You may be able to earn higher interest rates with other types of investment products. For example, you may get higher earnings by putting your money into a certificate of deposit (CD). In addition, some banks charge a monthly fee if your money market account balance falls below a minimum amount.
What is FDIC Insurance?
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that was founded in 1934 after thousands of banks failed during the Great Depression. The purpose of the FDIC is to protect depositors of insured banks located in the United States against the loss of their money if an insured bank were to fail.
The government only covers certain types of accounts, including checking and savings accounts, negotiable order of withdrawal (NOW) accounts, money market deposit accounts and CDs, as well as official bank items, such as cashier’s checks and money orders.
What does FDIC-insured mean in the case that a bank fails? If this were to happen, the FDIC would take one of two courses of action to protect the deposits:
- The preferred and most common method is to arrange a sale of the accounts to a bank the FDIC deems healthy. In this case, the new bank assumes the insured deposits of the failed bank. Depositors will become customers of the assuming bank with access to their insured funds. The assuming bank, however, has no obligation to maintain interest rates offered by the failed bank. Depositors may decide to withdraw some or all of their funds without penalty.
- If the FDIC cannot find a bank to acquire the deposits of the failed bank, the second course of action the FDIC would take is to pay depositors directly for their deposit accounts by check for up to the insured limit. These payments are usually made within a few days of the failed bank’s closing.
It’s important to note that FDIC protection only applies to deposits in banks. Deposits with credit unions are insured through the National Credit Union Administration (NCUA.) The level of protection is the same with $250,000 per account holder, in each ownership category, at any one insured credit union.
Money market accounts vs. money market funds
|Money market account
|Money market fund
|Level of risk
|Depends on the type of money market fund; some are more volatile than others
|Liquid high-balance savings
|Relatively low-risk investing
Money market deposit accounts and money market funds sound similar, and as a result the financial products can be easily confused. However, these two types of accounts are very different. While a money market account is a hybrid of a checking and savings account, money market funds are a type of fixed-income mutual fund offered by investment companies.
Like other mutual funds, money market funds are registered with the Securities and Exchange Commission (SEC) and regulated under the Investment Company Act of 1940. All U.S. money market funds must also comply with rule 2a-7 of the Investment Company Act of 1940, which limits their liquidity risk. As a result, this type of fund is considered to be one of the lowest-volatility types of investments.
But there are money market fund risks, and you may have wondered, are money market funds FDIC-insured? Unlike money market deposit accounts, money market funds are not insured by the FDIC. If the fund decreases in value, the account doesn't carry any type of protection and you could lose some or all of your investment fund.
Opening a money market account: Where to find the best rates
Because of the competitive rates they offer, money market accounts can be a good option for people who want to maximize their emergency savings or set a savings goal. They’re best for people with a high balance, as many banks require a high opening deposit and monthly minimum balance.
Money market accounts are convenient if you want easy access to your funds through check-writing capabilities. This provides an easy way to access your money as well as increased liquidity compared to other savings accounts. Still, you will be limited to six withdrawals per month per Federal Regulation D (see note).
Money markets offer variable interest rates that move with the market, which could be good in certain economic climates. Rates between money market account providers can vary. Check out our list of best money market accounts and rates. .
By understanding how FDIC-insured banks with money market accounts work to protect your deposits, you can keep your assets safe. And that ensures peace of mind — as well as your account balances.
Note: On April 24, 2020, the Federal Reserve amended Regulation D to delete the six-per-month limit on convenient transfers from "savings deposits." This change to Regulation D does not require banks and credit unions to eliminate their six-per-month limit, and thus many have chosen to maintain the six-per-month limit.