Can your money get stuck in a money market account?
Money market account vs. money market fund. A money market account is a type of savings account that provides liquidity and earns interest on the principal. You cannot lose the balance of a money market account, although penalty fees may be charged for not meeting balance and withdrawal requirements.
Money market accounts are considered safe, low-risk investments. They earn interest and allow for easy access to your money. Your balance is also FDIC-insured, so it's unlikely that you'll lose money. However, fees and interest rate changes could deplete your returns.
A money market is a savings account that usually earns higher dividends than a traditional savings account. In this way, it's similar to a certificate. However, the funds aren't locked down for a set period of time, so you can access them as needed.
Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.
Generally, any deposit account could fall into dormancy. That includes checking accounts, savings accounts, money market accounts and certificate of deposit (CD) accounts.
When saving for a financial goal, it's important to make sure you're utilizing the most beneficial investment type for your goal based on its time horizon. Money market funds make the most sense for short-term goals and generally should not be used for long-term investing, such as retirement.
Money market funds can protect your assets during a recession, but only as a temporary fix and not for long-term growth. In times of economic uncertainty, money market funds offer liquidity for cash reserves that can help you build your portfolio.
CDs tend to have higher rates than money market accounts and give no access to your money until a term ends. Funds get locked up for a set period of months or years, and withdrawing early typically results in a penalty, such as several months to a year's worth of interest. Most often, CD rates are fixed.
Which is safer a money market or checking account?
Both money market accounts and high-yield checking accounts represent safe places to keep your money. They are insured by the FDIC, which means that if the bank declares bankruptcy, you won't lose your money. With either account, you can write at least a limited number of checks each month.
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
Both high-yield savings and money market accounts enjoy FDIC insurance up to $250,000 per person, per bank, and per account type, making them among the safest choices for where to put your money.
Cons. Some institutions require high minimum balances to open an account or avoid fees. Rates are lower compared with some high-yield savings accounts. Access to money with checks and debit cards could encourage impulse spending, which might make it harder to save.
For example, if your money market account has high fees or is not insured by either the FDIC or NCUA, you could be at risk of losing money. The best money market accounts generally avoid these risks. Plus, you can open them online.
While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.
Alternatives to money market funds, money market accounts, and savings accounts include: Certificates of deposit: CDs are term-based savings accounts that lock up your funds for a set time period in exchange for higher interest rates.
Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%. By comparison, the top long-term capital gains rate is 20%.
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
What happens to money market accounts if bank fails?
The Federal Deposit Insurance Corp. (FDIC) insures bank accounts up to $250,000 per depositor, per account category. 1 So, unless your bank is not insured by the FDIC or you have deposited more than the FDIC limit, your money is safe if your bank fails.
Closing a money-market account
Putting your emergency cash in a money-market account allows you to earn some interest on your savings, and because you're free to close the account whenever you like, there's no risk in leaving that cash in a money-market account while you're not using it.
The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.
Smith: Since their introduction in 1971, money market funds have broken the buck just two times. The first was in 1994, when a fund was liquidated at 96 cents per share because of large losses in derivatives.
A15: If a money market mutual fund held securities on which the U.S. Treasury defaulted on the payment of interest or principal, then the fund would need to sell those defaulted securities, unless the fund's board of trustees determines that disposing of the securities would not be in the best interests of the fund.
