Are money market accounts safe?
Key takeaways
- Money market accounts are considered safe if they're with an FDIC-insured financial institution.
- A money market account could be right for you if you have short-term savings goals.
- A money market account is different than a money market fund.
When saving for different moments and milestones, you have a lot of savings account options. Whether you have a particular financial goal, want to diversify your investments or need the extra interest to pad your emergency fund, a money market account might be worth considering.
Are money market accounts safe?
Yes, money market accounts are safe if they're in a Federal Deposit Insurance Corporation (FDIC)-insured financial institution or National Credit Union Administration (NCUA)-insured credit union. Banks and credit unions offer these types of savings accounts, and they're typically considered low-risk. Money market accounts tend to offer higher interest rates than regular savings accounts and greater liquidity than other savings vehicles and investments like certificates of deposit (CDs) and brokerages.
That doesn't mean they're completely without downsides, though. Money market accounts can charge fees if you don't meet certain balance requirements. They may also limit the number of withdrawals and transfers out of the account per month.
Who should open a money market account?
A money market account is appropriate for nearly anyone with savings or investing goals. This type of deposit account may be right for you if you're:
- Building an emergency fund of three to six months of expenses
- Saving for an upcoming vacation
- Saving for a major purchase, such as a down payment on a house
- Looking for a low-risk option to add to your investment portfolio
- Planning to have children and want to save for those costs
What are the risks of money market accounts?
While money market accounts are considered safe, they have some potential drawbacks, especially if you're holding a large balance in them. For example, any amount over $250,000 in a single account isn't covered under FDIC or NCUA insurance. Also, while money market accounts usually offer higher interest rates than traditional savings accounts, they may not accrue interest at a rate that keeps up with inflation. In that case, your money could lose buying power.
Is a money market account the same as a money market fund?
Money market accounts and money market mutual funds are often confused because of their similar names. A money market account is a savings account with few risks while a money market fund is a mutual fund that invests in securities with short-term maturities, such as commercial paper, certificates of deposit and U.S. Treasuries. Money market mutual funds have more risks because they're an investment in the market, and they aren't FDIC or NCUA insured.
| Money market account | Money market fund | |
|---|---|---|
| Issuer | Usually offered by banks or credit unions | Offered by investment companies or mutual fund companies |
| Risk exposure | Lower risk | Higher risk because of potential fluctuations in the value of underlying securities |
| Regulatory oversight | FDIC-insured (up to specified limits for banks) | Regulated by the Securities and Exchange Commission (SEC) |
| Interest rates | Generally lower than money market funds | May offer higher yields than money market accounts |
| Liquidity | Easily accessible, often with check-writing and ATM capabilities | Generally liquid, but restrictions may apply, and selling shares could take a few days |
| Minimum investment requirements | Usually low or no minimum balance requirements | Minimum investment amounts may apply |
| Fees | Limited fees but charges are possible for falling below the minimum balance | Management fees and other expenses may apply, impacting overall returns |
In a nutshell, money market accounts are safe and come with little to no risk. They're a great bank account option for almost any low-risk savings need.
Ready to start managing your money? Take a look at the financial solutions at Citizens, ranging from checking accounts and savings accounts to money markets and CDs.
Related topics
How does a money market account work?
Money market accounts offer competitive interest rates and can work for short-term and long-term savings goals.
Money market account vs. CD
Money market accounts and CDs have higher interest rates than savings accounts, but money market accounts are more accessible than CDs.
Money market accounts vs. savings accounts
Money market accounts usually require a higher minimum balance than savings accounts so they may be better for longer-term savings goals than savings accounts.
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Disclaimer: The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.
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SECURITIES, INVESTMENTS AND INSURANCE PRODUCTS ARE SUBJECT TO RISK, INCLUDING PRINCIPAL AMOUNT INVESTED, AND ARE:
· NOT FDIC INSURED · NOT BANK GUARANTEED · NOT A DEPOSIT · NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY · MAY LOSE VALUE