Are Money Market Accounts FDIC Insured?
With a money market account, you earn interest on your account balance as you would with a savings account. However, one important difference is that interest rates on money market accounts are usually higher than those offered by standard savings accounts.
But does the Federal Deposit Insurance Corp. insure money market accounts? The answer is yes if you open one at an FDIC-insured institution. Here’s what to know.
Are Money Market Accounts FDIC Insured?
The FDIC insures money market accounts up to $250,000. However, the insurance applies to all deposit accounts you have with the institution in the same ownership category. The surplus amount doesn’t receive the same protection if your total balances exceed the $250,000 limit.
For example, if you have $150,000 in checking, $100,000 in savings and $50,000 in a money market account, then that’s a total of $300,000 at a single FDIC-insured financial institution. You may lose $50,000 if the bank suddenly fails, but the FDIC will compensate you for $250,000 of your account balances.
Many consumers find that $250,000 in FDIC insurance is enough to cover their account balances. However, if you require more protection, you can spread your money across several different FDIC-insured banks. The FDIC will insure your balances up to the coverage limits at each separate financial institution.
Does the FDIC Insure Money Market Accounts at Credit Unions?
No. If you open an account at a credit union, you will receive similar protection through the National Credit Union Administration as long as it’s NCUA insured. The FDIC only insures money market accounts at FDIC-insured banks.
The NCUA insures money market accounts through the National Credit Union Share Insurance Fund. Credit union members can receive up to $250,000 at NCUA-insured credit unions if they fail. It follows a similar structure to the FDIC — including the separation of insurance by ownership categories.
How Does FDIC Insurance Work?
The FDIC is a government-established agency designed to provide peace of mind for consumers by securing and regulating the U.S. banking system. It insures deposit accounts at U.S. banks and closely monitors financial institutions to ensure stability.
If your bank fails, the FDIC should replace your money up to the coverage limits within a few business days.
The FDIC assigns various ownership categories to the accounts it protects. The account ownership categories include all of the following:
Single accounts
Jointly held accounts
Corporation, partnership and unincorporated association accounts
Some retirement accounts, such as individual retirement accounts
Trust accounts
Government accounts
Employee benefit plan accounts
If you have accounts that fall into different ownership categories, the FDIC protects each of them up to $250,000. So if you have an IRA and a personal checking account, they each have up to $250,000 in FDIC insurance, even if they’re at the same bank. That’s because they are in different account ownership categories.
What Is FDIC Insured?
The FDIC insures the following when they’re held in an FDIC-insured financial institution:
Checking and savings accounts
Money market deposit accounts
Certificates of deposit
Negotiable order of withdrawal accounts
Money orders
What Is Not FDIC Insured?
The FDIC does not insure the following:
Stocks and bonds
Mutual funds
Life insurance policies
U.S. Treasury bills, bonds and notes
Municipal securities
Cryptocurrency assets
Safe deposit boxes
Additionally, the FDIC does not protect deposits held at a non-FDIC-insured banking institution. So before you open a new checking, savings or money market account, ensure that it’s FDIC insured to mitigate your risk.
What Is a Money Market Account?
A money market account shares some traits with both checking and savings accounts. You can deposit money and make withdrawals, and many money market accounts let you write checks. Most accounts come with a debit card, so you can make point-of-sale transactions and ATM withdrawals to access your funds. Like a savings account, your balance can earn interest.
Your bank may limit your monthly transactions and require you to maintain a set balance amount to keep the account open or receive a certain interest rate.
You can contact your bank to find out if it offers money market accounts and what interest rates are available to you. As long as you open your account with an FDIC-insured institution, up to $250,000 of your money should be safe from bank failure.
What’s the Difference Between a Money Market Account and a Money Market Fund?
While they have similar names, a money market account and a money market mutual fund are very different.
A money market account is a deposit account that allows you to earn interest on your balance. Your money remains readily accessible, although your financial institution may limit transactions and require a minimum balance. Money market accounts usually have higher interest rates than interest-bearing checking accounts or standard savings accounts.
A money market mutual fund is an investment account. You direct your deposits toward mutual fund investments and receive dividends when those do well. There is no guarantee of a return, and you may incur losses, but this type of investing carries less risk than many other investment types. Generally, you must open a money market mutual fund with a brokerage firm or fund company. The balance is not FDIC insured.
Final Take
Money market accounts can be a way to grow your funds more quickly than a standard savings account while keeping those funds more accessible than an investment account. Provided you use an FDIC-insured institution, your balance will be protected for up to $250,000. Talk to your current bank and shop around to find the best money market account for your needs.
This article originally appeared on GOBankingRates.com: Are Money Market Accounts FDIC Insured?
