Are money market accounts safe?
Yes, money market accounts provide a safe option for saving money. Because money market deposits at credit unions, banks, and brokerage companies are insured from failure, it is uncommon to lose money in a money market savings account.
While there is no direct way to lose money in a money market account, it is possible to lose money indirectly. For example, if you don’t maintain the minimum required account balance and are charged penalty fees, that may result in a loss.
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What are money market accounts?
A
money market account is a type of savings account offered by credit unions, banks, and other financial institutions. Money market accounts are sometimes referred to as money market deposit accounts and money market savings accounts.
Money market accounts are interest-bearing accounts that earn interest on the account balance. Money market accounts may come with a debit card and checks, to make financial transactions easier and more convenient.
How do money market accounts work?
To open a money market account, you’ll need to provide your name, address, phone number and Social Security number. Then you’ll need to fund it with the minimum required amount and always maintain the minimum balance to avoid paying a penalty fee.
Once the account is opened, you can make deposits into your money market account as often as you’d like, using your credit union or bank’s deposit services.
Money market accounts are geared toward savings, which is why most money market accounts have rules on how many withdrawals are allowed each month without penalty.
Prior to 2020, the Federal Reserve created a limit of six withdrawals from certain types of accounts. Although the requirement was removed, some credit unions and banks have kept the restrictions in place. Therefore, before you open a money market account, speak to a representative at the financial institution of your choice about the withdrawal rules and fees.
If a transaction limit is in place, then you may not be allowed to withdraw money or make payments more than six times a month from a money market account by check, debit card, draft, or electronic transfer.
Withdrawals or payments by ATM, in person, by mail, messenger, or telephone check (where payment is made by using your checking account number and bank routing number) typically do not count against the six-transaction limit.
Are money market accounts insured?
Money market accounts are safe and insured. Accounts held at a bank are insured by the
Federal Deposit Insurance Corporation (FDIC). Accounts held at a credit union are insured by the National Credit Union Administration (NCUA).
Both the FDIC and the NCUA insure money market accounts up to $250,000. It’s important to note that the deposit insurance amount of $250,000 is provided per depositor, per FDIC-insured bank, per ownership category.
Can you lose money in a money market account?
There are few
risks of money market accounts. The primary way a money market account could lose money is if the account is charged fees, due to the account holder not adhering to the financial institution’s rules and conditions of the account. All financial institutions charge penalty fees for not maintaining the minimum required balance.
Most financial institutions limit the number of withdrawals that you can make each month. If you exceed the allowed number of withdrawals, a penalty fee will be charged. If you are charged these types of fees, then you will lose more money than the interest gained on the account can make up for.
Money market account vs. money market fund: what's the difference?
As we’ve discussed, a money market account is a type of savings account that provides earns interest on the principal balance. A money market fund is a type of mutual fund typically held as part of an investment account. Mutual funds are a bundle of investments in several funds that may gain and lose value, meaning you could lose part of your initial investment. According to the Consumer Financial Protection Bureau, A money market mutual fund account is considered an investment, and it is not a savings or checking account, even though some money market funds allow you to write checks.
Pros and Cons of money market accounts
Money markets are an excellent option for saving money when you need to keep the money easily accessible (liquid). However there are
money market pros and cons to consider.
Advantages of money market accounts include:
- Easier access to funds. Your funds can be accessed using online banking features provided by your credit union or bank, as well as by ATM. You’ll also be offered checks for your money market account.
- Better interest rates. Money market interest rates are almost always higher than checking and savings accounts interest rates. This is how financial institutions reward consumers for the larger minimum balance requirement.
- FDIC / NCUA insured. All money market accounts are insured. If the account is held at a bank it is insured by the Federal Deposit Insurance Corporation (FDIC). A money market at a credit union is insured by the National Credit Union Administration (NCUA).
How do money market accounts compare?
Here’s how money market accounts compare to other types of savings accounts.
Money market vs. checking accounts. A money market is designed with savings in mind, while a checking account is primarily for the payment of debts and used to manage the outflow of money. Money markets come with check-writing privileges, but if you will be writing a lot of checks or primarily paying bills, it’s better to use a checking account for this purpose.
Money market vs. savings account. These accounts could have similar interest rates, so consider whether you are able to maintain the balance requirement of a money market and the transaction restrictions. If not, a traditional savings account may be better.
Money market vs. CDs. Certificates of deposit (CDs) require that the deposited funds sit in the account for a specific timeframe to earn a specific interest rate, usually more than money market interest rates. CDs are considered a long-term earnings instrument. While money markets have some limitations on the number of transactions you can make each month, the money is always accessible without a penalty if you adhere to the transaction requirements.
Are money market accounts worth it?
Money markets are ideal if you need to keep your money liquid. These accounts tend to offer higher interest rates than regular savings accounts, and lower interest rates than certificates of deposit (CD). They include tiered infest rates, meaning the larger the balance you maintain the more interest you earn.
While you cannot lose the balance of a money market account, penalty fees may be charged for not meeting balance and withdrawal requirements. Before committing to opening a money market, be sure you’ll be able to adhere to the account requirements.
How much money should I keep in my money market account?
There is no idea amount of money to keep in a money market account if the minimum required amount is maintained. The amount of money you keep in your account will depend on your spending needs and your savings goals.
If you are saving money for retirement you may want to explore other investments that will earn more interest and have tax benefits, such as a
Roth IRA or a
traditional IRA.
Where can I open a money market account?
A money market account can be opened at a
credit union, bank, or online bank.
How to open a money market account
To open a money market account, you’ll need to provide your name, address, phone number, a government-issued photo ID, and Social Security number. Then you’ll need to fund it with the minimum required amount and always maintain the minimum balance in order to avoid paying a penalty fee.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Your Money Market Account Today!