How safe is your money in a money market account?
Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
First and foremost, money market accounts are typically safe because they're insured by the federal government. If you open a money market account at a federally insured bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your cash per bank, per depositor.
The risks of money market accounts
MMAs are considered very low risk in general, especially if the depositor's total balance at the bank or credit union is below the applicable FDIC or NCUA limit. FDIC or NCUA standard insurance covers up to $250,000 per depositor per ownership category at each financial institution.
The takeaway
Money market accounts are a great option if you're looking to maximize the amount of interest you can earn in a low-risk setting. You'll have easy access to your money, your account is insured up to $250,000, and it's a great financial tool to help you reach your short-term savings goals.
Money market investing can be advantageous if you need a relatively safe place to park cash in the short term or if you're diversifying a growth portfolio. Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.
If you're saving for something you'll need the money for in less than three to five years, saving in a money market fund may make sense for you. Money market funds are ideal for short-term saving because they invest in highly liquid securities with the objective of capital preservation and income.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
Money market accounts are considered safe, low-risk investments. They earn interest and allow for easy access to your money. Your balance is also FDIC-insured, so it's unlikely that you'll lose money. However, fees and interest rate changes could deplete your returns.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners.
What is safer than a money market account?
Which is safer: CDs or MMAs? Both CDs and MMAs are federally insured savings accounts, so they're equally safe. Up to at least $250,000 gets insured in your name across your individually owned accounts at one bank or credit union. (Learn more about federal deposit insurance.)
Money market funds can protect your assets during a recession, but only as a temporary fix and not for long-term growth. In times of economic uncertainty, money market funds offer liquidity for cash reserves that can help you build your portfolio.
Savings accounts generally lack the minimum deposit and balance requirements many money market accounts have. However, money markets typically offer higher interest rates than regular savings accounts, letting you earn more on your saved money.
For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.
Money market funds are generally considered to be a very safe haven for your cash. They are much less risky than mutual funds that invest in stocks. However, they are not federally insured and investors can lose money.
Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%. By comparison, the top long-term capital gains rate is 20%.
No, money market accounts do not have time limits or terms. You can deposit or withdraw money from the account at any time, though there may be limits on how many withdrawals or transfers you can make in a single statement period.
So, your money is never really stuck. However, MMAs sometimes charge small penalties if your balance drops below a certain amount or you make more withdrawals than agreed. So, you may withdraw your funds at any time, but some withdrawals can lower your money's earning potential.
The average money market rate is less than 1 percent. But let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.
Interest you earn in a money market account is taxable as earned income. Any interest you earn on bank accounts, money market accounts, certificates of deposit (CDs), corporate bonds and deposited insurance dividends is taxable.
What is the 50 30 20 rule?
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
Disadvantages. Large minimum deposit requirements: Money market accounts may require a larger deposit than traditional savings accounts either to open the account or to earn the top APY. Lower yields than other bank products: Certificates of deposit (CDs) may pay a more competitive yield.
Money market funds aren't risk free
This is known as "breaking the buck." Bruns said it's important for investors to know that money market funds aren't protected by the Federal Deposit Insurance Corporation, which generally offers depositors $250,000 of coverage per bank, per account type.
Your assets are protected at Schwab. We work hard to make Schwab a secure and safe place for your money. Whether you hold securities like stocks, bonds, mutual funds, exchange traded funds, or money market funds in a Schwab brokerage account, or cash deposits in a Schwab Bank account, we have your assets protected.
Both high-yield savings and money market accounts enjoy FDIC insurance up to $250,000 per person, per bank, and per account type, making them among the safest choices for where to put your money.
