If you want to earn extra income from your savings balance, you might consider a money market account. A money market account has many of the features of a checking account, but typically earns interest at a higher rate than a traditional checking or savings account. Like other deposit accounts, money market accounts are federally insured up to FDIC limits, so you won’t lose your cash if your bank fails. Money market accounts are a safe way to grow your money, but it’s important to understand how they work before opening one.
Are money market accounts safe?
Money market accounts protect your principal deposit, so you won’t lose money. Even in the rare event of a bank failure, your money will be safe as long as you adhere to the FDIC’s insurance limits and open the account at a member financial institution. However, since money market accounts tend to have variable interest rates, there can be a risk of lower returns if the market changes.
Money market accounts shouldn’t be confused with money market mutual funds. Money market mutual funds are a type of investment account offered by brokerage firms. While these funds may be less risky than other types of investment accounts, they aren’t deposit accounts, so they don’t come with FDIC insurance.
Are money market accounts FDIC insured?
A money market account automatically qualifies for FDIC insurance as long as the bank you use is FDIC-insured. You can use the FDIC BankFind Suite to check if your bank is a member. FDIC insurance is also subject to certain limits. Each depositor gets $250,000 in coverage per bank, across all single deposit accounts.
If you choose to open a money market account at a credit union, the funds will also be federally insured up to $250,000. The NCUA guarantees deposit accounts up to $250,000 per member at each credit union. You can use the NCUA Credit Union Locator to check if your credit union qualifies.
What does FDIC insurance cover?
FDIC insurance covers deposit accounts held at insured banks, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs). The FDIC insures up to $250,000 for each depositor, at each insured bank, for each account ownership category. Joint accounts with your spouse and trust accounts each get $250,000 in coverage, while all single deposit accounts at the same bank collectively receive $250,000 in coverage.
That means that if you opened a $100,000 money market account at the same bank where you have $50,000 in a checking account, both accounts would be fully insured.
The FDIC doesn’t cover accounts that aren’t deposit accounts, including investment accounts, life insurance policies, annuities, crypto assets, and safe deposit boxes.
What if you need more insurance?
There are a few ways you can get insurance for more than $250,000 in deposits.
- Open accounts at multiple banks or credit unions: Since each bank or credit union gets $250,000 in federal insurance per depositor, you can maximize your coverage by opening accounts at multiple financial institutions.
- Use different ownership categories: Opening accounts in additional categories, such as a joint account, trust account, or business account, gives you access to additional FDIC insurance, since the FDIC offers you $250,000 in coverage per category at each bank.
- Use bank networks or cash management accounts: If you want to spread out your money across different banks without having multiple financial relationships, you can turn to IntraFi Network Deposits for millions in FDIC coverage. Or, you can open a cash management account with a brokerage firm. For example, Betterment’s Cash Reserve account is FDIC insured up to $2 million.
What happens if my bank fails?
The FDIC has your back in a couple of ways if your bank fails. Typically, the FDIC will arrange for the failed bank to be sold to a healthy bank, in which case you’d have immediate access to your insured deposits at the new bank. If the FDIC can’t find a healthy bank to acquire the failed bank, it will send checks directly to depositors, usually within a few days.
Even for uninsured funds, the FDIC provides some recourse. The FDIC will attempt to settle the failed bank’s debts by selling its assets. As the FDIC recovers the funds, depositors may receive payments for their uninsured deposits, but this process can take time. While bank failures are rare, you should make sure all your deposits are fully insured.
Pros and cons of money market accounts
The FDIC automatically covers each depositor for up to $250,000 in deposits per bank. That means you can open a money market account with a large deposit and take advantage of high savings rates without risking the funds. You’ll have easy access to your money, and you won’t have to worry about a bank failure wiping out your savings.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at firstname.lastname@example.org.