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Money market accounts combine the best features of savings and checking accounts. They allow you to earn interest and grow your money over time like a savings account while offering the flexibility to write checks, similar to a checking account. And like other deposit accounts, money market accounts are insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Association (NCUA).
Before you get a money market account, it's important to understand how insurance works for money market accounts and why money market accounts are a low-risk option to safeguard and grow your money.
Are Money Market Accounts FDIC-Insured?
The FDIC insures money market accounts issued by banks, while the NCUA insures those issued by credit unions. This deposit insurance provides your money with a level of protection in case your bank goes under.
Most financial institutions provide FDIC or NCUA insurance, but not all do. As such, it's wise to verify a bank's membership by asking a bank representative, looking for the FDIC or NCUA sign at your branch office, or using the FDIC's BankFind search or the NCUA's credit union locator.
How Much Are Money Market Accounts Insured For?
Money market accounts are FDIC- or NCUA-insured up to $250,000 per depositor, per financial institution, per ownership category. This means you can maximize your insurance coverage to protect savings above $250,000 by opening accounts at different banks or by opening more than one account at the same bank in different ownership categories.
For example, let's say you open a money market account at Bank A and another at Bank B. In this case, the FDIC will insure your deposits up to $250,000 at each bank. However, if you open two money market accounts at two different Bank A branch locations, the FDIC will count it as one financial institution, and you'll be insured up to $250,000 on your deposits.
The other way to maximize your FDIC insurance coverage is to own multiple accounts at the same bank or credit union in different ownership categories: For instance, if you have a combined total of $250,000 in a savings account, certificate of deposit (CD) and money market account at your bank, you can also have $250,000 in coverage in a separate category, such as a retirement or business account.
You can explore your potential coverage in different scenarios using the FDIC's Electronic Deposit Insurance Estimator (EDIE). This online tool can calculate your insurance coverage across various types of deposit accounts, including money market accounts, savings accounts, checking accounts and CDs.
Money Market Accounts vs. Money Market Funds
It's important to differentiate between money market accounts and money market funds, which sound the same but have distinct characteristics and are regulated differently.
- Money market account: A money market account is a type of deposit account, typically offered by banks and credit unions. These accounts offer benefits such as earned interest, check-writing capabilities and insured deposits.
- Money market fund: Money market funds are a unique type of mutual fund you can purchase through a brokerage firm or mutual fund company. These funds invest in assets, so they are not federally insured.
Simply put, money market accounts are insured deposit accounts, while money market funds are investment products without federal insurance.
Can Money Market Accounts Lose Money?
Money market accounts carry little risk of losing money because they are usually federally insured for up to $250,000 for an individual account and $500,000 for a joint account (assuming you have no other deposit accounts at the financial institution). And unlike investments, you can't lose your balance, even if money market yields decrease.
However, you can lose money to fees, such as a minimum balance fee that kicks in if your balance falls below the threshold. Also, keep in mind, earnings with money market accounts rarely outpace inflation, meaning your money will lose purchasing power over time. For this reason, consider using a money market account to achieve short-term financial goals rather than long-term ones.
Both money market accounts and savings accounts are considered safe places to store your money and have similar features. Opening a money market account may make sense if you value the flexibility of using a debit card and paper checks. On the other hand, a high-yield savings account may be a better option if you're looking for a safe place to earn a higher rate on short-term or emergency savings.
The Bottom Line
Money market accounts are a safe place to grow your savings since they are backed by federal deposit insurance. These accounts are excellent options for building an emergency fund, vacation savings or another short-term financial objective.
Saving your money in an interest-earning account is a wise step toward securing your financial health, but don't forget about your credit health. Having strong credit can improve your odds of getting approved for credit that helps you achieve financial milestones, like owning a home or car. Also, good credit can help you secure more favorable interest rates and strengthen your overall financial well-being. Experian resources like free credit monitoring can help you build and maintain a strong credit score.