Money market accounts: Are they safe?

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Anytime you’re thinking about moving your money somewhere new, you need to think about an essential question: Is there a risk you might not get some of it back? You know that you can rest easy with a standard checking and savings account, but what about other less-common offerings?

One of the options you’ll find at some banks and credit unions is a money market account.

“A money market savings account – often referred to as an MMA – is an account that offers the potential for higher earnings than a standard savings account, and commonly has tiered rates that may change weekly based on the money market environment,” says Jaspreet Chawla, senior vice president of savings products at Navy Federal Credit Union. “[These] are an easy way to earn more than a basic savings account while still having all the same benefits you might be accustomed to enjoying — including easy access to your money and the ability to write checks and withdraw money from an ATM.”

Are money market accounts safe?

Money market accounts are about as safe as it gets in terms of keeping your money away from any type of danger. As long as you verify that the bank has FDIC insurance (or insurance through the National Credit Union Share Insurance Fund at credit unions), up to $250,000 of your funds enjoy the no-risk benefit of a money market account. If your financial institution fails, your money stays protected.

As you compare options for parking your cash, be aware that there is another product that looks quite similar in name but is a fundamentally different product: money market funds. When you deposit money in a money market fund, the bank invests your money in short-term securities such as U.S. Treasury bills. These are mutual funds, and while they do offer a fairly low level of risk, they do not carry FDIC insurance.

What makes a money market account unique?

Money market accounts straddle a line between checking and savings accounts. With a money market account, you may get the ability to write checks, and it may also come with a debit card for easy on-the-go access to cash. Money market accounts are generally limited to six withdrawals or transfers per statement cycle. If you exceed that limit, you’ll likely pay a fee for each additional transaction (although ATM withdrawals are not part of the limit).

Who should get a money market account?

Money market accounts are a good choice for anyone who wants to earn some additional money without taking on any additional risk. If you have a large chunk of money earning little to no interest, a money market account should be on your radar. It’s also a good place to park your emergency funds.

How much money should you keep in a money market account?

This depends on you and the financial institution you are using.

Navy Federal’s Chawla points out that many financial institutions require account holders to meet certain thresholds before earning higher interest. For example, at Navy Federal Credit Union, you must deposit at least $2,500 to earn a higher interest rate. At Discover, you need to deposit $100,000 to get the most attractive interest rate on a money market account.

“If you are not able to meet the minimum balance requirement to earn dividends from your financial institution, a money market savings account might not make sense for you,” Chawla says.

There are some banks with no minimum balance requirement, though, such as Ally Bank and Synchrony Bank.

On the other end of the equation, let’s say you have no trouble meeting the minimum balance requirement. Instead, you have too much money – a good problem. Then, you need to weigh the best money market rates with other investing opportunities where you will accept higher risks for the potential of higher rewards.

Let’s say you have $50,000. You could put all of it in a money market account, but you need to account for the potential of earning a higher return on a portion of that money by investing in stocks or bonds. Do the math to make sure that you have enough emergency fund cash to cover up to six months of your expenses. In your case, let’s say that number is $20,000. Once you have hit that threshold, it may be wise to consider other higher growth opportunities for the rest of the money.

Where to maximize your money market account earnings

The best money market account rates are often found at online banks. Without the overhead of big branch network expenses, these institutions can usually afford to pay a higher yield. You can also find competitive rates at credit unions.

Be sure to compare the best money market rates and comb through minimum balance requirements to figure out where you can earn more interest.

Bottom line

A money market account is a very safe product to help accelerate your savings. If you have a lot of cash on hand, these accounts are a good place to watch it grow.

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Written by
David McMillin
Contributing writer
David McMillin writes about credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.
Edited by
Banking editor