Money Markets Vs Savings Accounts

TheInfoMan | Oct 16, 2022 | 15 posts since 2018

Isn't it true that a Money Market held at a bank is only as good as the underlying securities whereas a Savings Account is only as good as the bank your funds are in? This goes back to 2008 when the Money Markets locked up and caused at least one brokerage to break their $1.00/share rule. In other words, if that lock up event ever happened again, it doesn't matter if your money is in an A+ healthy bank, you are still in danger.

Right or Wrong and Explain Please!

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Answers

MAKNYC | Oct 16, 2022 | 323 posts since 2015

As 111 eluded to, money market funds (MMF) are different than money market accounts (MMA). To better understand why….a money market fund is purchasing securities whereas the money market account is deposited funds at the bank. You are asking about a money market account held at a bank (and presumably not in an investment account held there). This type of account would be fully covered under FDIC insurance subject to all the customary limits and protocols. It’s no different from a risk perspective to a savings or checking account.

TheInfoMan | Oct 16, 2022 | 15 posts since 2018

Thank you MAKNYC!!

GreenDream | Oct 17, 2022 | 358 posts since 2019

Good point well made (saved me the effort of making the same point MAKNYC). Because "money market" is part of the name for both MMAs and MMFs, it is easy enough to confuse the two, so no shame to the OP if they were a bit confused by it. Also, kudos to 111 for his answer about MMFs.

111 | Oct 16, 2022 | 672 posts since 2019

The fund you're referring to was a money market mutual fund (called the “Reserve Primary Fund”) associated with the Lehman bankruptcy in September 2008. It “broke the buck”, as the saying goes, and paid back 97 cents on the dollar to holders after writing off debt associated with Lehman. (Normally $1 equals 1 share for these funds.) This fund held only 1.5% of its assets in Lehman commercial paper, yet investors expressed fears of its other holdings. The fund was unable to meet redemption requests and was forced to suspend operations and liquidate.

To my knowledge this is the only money market mutual fund, of the type that sold to the public, that has ever broken the buck. (There was a small institutional money market mutual fund that failed in 1994, but it had no accounts held by individuals.) It is true that money market mutual funds are not guaranteed by the Federal government or Federal agencies.

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