Can you lose money in a money market account?

Can you lose money in a money market account? When you need a safe way to grow your money, you might consider a money market account for your savings. They may seem riskier than regular savings accounts because of the word "market," but it's difficult to lose money with them because they invest in low-risk securities.

You also don't have to worry about locking in your money until a certain date with a money market account. You can make a certain number of withdrawals each month, which can come in handy if you need to dip into your savings for an emergency or something else.

How does a money market account work?

A money market account is an interest-bearing deposit account that's similar to a savings account. It usually comes with an ATM card and check-writing privileges. Money market accounts are popular with savers because they tend to have higher interest rates than traditional savings accounts. You can also easily access your money if you need it. The minimum balance requirements vary but are usually higher than savings accounts.

Although money market accounts have "market" in their name, they don't invest in stocks, bonds or other markets. Instead, they invest in short-term low-risk securities, like US Treasuries.

Money market accounts have variable interest rates, and the annual percentage yield (APY) varies depending on current market conditions. The interest you earn also compounds, which means you'll earn interest on previously earned interest.

Can you lose money in a money market account?

Since they're a type of savings account that invests in low-risk securities, money market accounts rarely lose money. They're also insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per account type per financial institution.

Although money market accounts are considered safe investments, your account balance could fluctuate in several ways:

• A money market account can have an annual maintenance fee that reduces your account balance each year.
• If you make too many withdrawals in a month, withdrawal fees will lower your account balance. This may cause you to pay more in fees than what you earn in interest in a month.
• Because the APY continually fluctuates, your monthly earnings will vary, but it won't cause your account balance to decrease.

Although they have similar-sounding names, money market mutual funds are different from money market accounts. Money market funds are professionally managed mutual funds that have an investment focus and aren't FDIC-insured.

How much does a money market account earn?

Several factors influence how much a money market account earns, including how much you deposit, the current APY and how often it compounds. A money market account could compound daily, monthly or quarterly. If an account compounds daily, for example, your account balance will grow at a faster rate than if it were compounded monthly or quarterly.

Some banks also offer tiered interest rates based on account balances. This means you could get a higher APY and earn more by depositing more money.

Is your money stuck in a money market account?

You can access the money you deposit in a money market account when you need it, which makes it ideal for an emergency fund or saving for a financial goal. The number of withdrawals you can make per month, however, is usually limited to six. You may have to pay a fee for additional withdrawals beyond the monthly limit.

Money market accounts are different from certificates of deposit (CDs) and individual retirement accounts (IRAs), which have time-based restrictions. With a CD account, your money is usually held until the maturity date. You can't make withdrawals before then without incurring an early withdrawal penalty. Early withdrawals are possible with IRAs, but you may incur an early withdrawal penalty and face tax consequences.

A safe investment for your future needs

A money market account is a low-risk investment that's ideal for an emergency fund and short- or midterm savings goals. Since it's FDIC-insured, you can be assured that the money you deposit is protected. In addition to earning more interest than a savings account, you can also make a certain number of monthly withdrawals.

Explore all the different financial options at Citizens, including checking accounts, savings accounts and money markets.