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 personalized help, an experienced financial advisor can work with you to determine how a money market account fits into your finances.

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. They are not available via banks and credit unions, 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 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.

When to Use a Money Market Account: Common Examples

A money market account can be a good option when saving for a short-term goal, like a home down payment or a car purchase. You will earn more interest than a standard savings account, and you can still access your money through checks or a debit card .

It also works well for emergency savings. If you want to set aside a few months of expenses in case of job loss or a big repair, a money market account keeps your money safe and growing. Since the funds are easy to access, you will not have to wait days to get your cash in an emergency.

Money market accounts are also helpful if you want to keep a large cash balance separate from your regular checking account. This can prevent accidental spending and make it easier to track savings progress. Some people use MMAs as a backup account for infrequent but important payments.

However, if you need to make regular withdrawals or maintain a low balance, a money market account might not be the best fit. Some have minimum balance requirements or limit how often you can take out money. In that case, a basic checking or savings account could be a better match.

Should You Open a Money Market Account?

Closeup of a person reviewing a money market account statement.

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.

However, before opening an MMA, it’s important to 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

A woman reviewing her money market account statement.

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 a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel 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.