The Silicon Valley Bank Closure Has Me Worried. Are Money Market Accounts Safe?

When banking failures occur, depositors naturally become worried about their money. They also tend to question whether to withdraw cash from their accounts or leave it where it is. And as depositors look for a safe place to house their funds during a crisis, many consider money market accounts (MMAs) as an option. But are money market accounts a secure place to store cash? We'll discuss the details.

If you want more guidance on what financial institution best fits your financial plan, consider enlisting the help of an experienced financial advisor who can provide a holistic strategy given your personal circumstances.

Are Money Market Accounts Safe?

Like many commercial bank accounts, money market accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). So if depositors have $250,000 or less saved in their money market account, they are covered. This helps depositors by adding insurance for their money. If depositors have more than $250,000, putting the rest of their money in another FDIC-insured bank account will keep their money secure as well.

Money market accounts are different from money market mutual funds, however. Money market mutual funds are typically offered by brokers and are not FDIC-insured. Banks and credit unions don't offer money market mutual funds, either.

What Is a Money Market Account?

A money market account works as a kind of hybrid between a savings account and a checking account. In general, a money market account can offer the best of both worlds. For example, MMAs may be similar to checking accounts in that account holders can write checks or use a debit card. Those options may not be available for users of savings accounts.

MMAs also have the ability to earn interest like a savings account does. They may even earn higher interest than your typical savings accounts earn.

When it comes to annual percentage yield (APY), money market accounts may use a tiered system. This means that APYs can be higher or lower depending on how much you have saved in your account. Keep in mind APYs can change to higher or lower rates at any time.

On the flip side, money market accounts do come with limitations. For one, it's not uncommon for MMAs to have minimum balance requirements. And MMA holders are typically restricted to six withdrawals per banking statement cycle due to federal regulations. If you have any questions about the restrictions, you should contact your financial institution for more information.

Should You Open a Money Market Account?

Not only can you find money market accounts at banks, but they can also be offered at credit unions, too. At credit unions, MMAs are insured by the National Credit Union Administration (NCUA) for up to $250,000. But before diving in to open an MMA, consider the following factors:

Your Current Banking Institutions

When it comes to a banking collapse, don't panic immediately. Keep up to date with any news surrounding your current banks, whether it's positive or negative.

Taking money out of your account immediately without good reason may cause problems. For example, making a $10,000 withdrawal or more will trigger the bank to report it to the Internal Revenue Service (IRS) for any potential illegal activity.

Your Withdrawals and Savings Habits

A money market account may grow over time. So if you plan on parking your cash, this is a good place to start. But if you make frequent withdrawals, a money market account may not be the right choice for you, as there are limited withdrawals per month. Consider your spending habits before making a decision.

The Benefits of a Financial Advisor

If you are having trouble making a decision on where to safely deposit your money, a financial advisor may be able to help you review your options. An advisor may help calm your fears during a time of crisis and help walk you through various financial scenarios needed to help you resolve your concerns and reach your financial goals.

Bottom Line

Any time a banking crisis occurs, it will naturally cause fear among many depositors. Many depositors will look for a safe place to put their money, and a money market account could be a suitable destination for their needs. To determine if a money market account is right for you, consider your savings and withdrawal habits.

Tips for Opening a New Bank Account

• Banking decisions can be big. From deciding where to keep your money to what types of accounts you need to use, these decisions impact your financial future. Working with a financial advisor can help you be proactive about making the right decisions for your unique personal situation. Finding the right financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

• As you're contemplating what bank to use for your new checking or savings account, consider our guide to the best banks in America.

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