Are Money Market Accounts Safe?

Yes, money market accounts are safe when held at an FDIC-insured bank or NCUA-insured credit union. The problem is that people often confuse money market accounts with money market funds, and they are two different animals: the first is a deposit account, while the other is an investment.

Here's what makes an MMA safe and what happens if a financial institution fails.

Key Takeaways

• Money market accounts are safe when insured. Deposits at an FDIC-insured bank or NCUA-insured credit union are protected even if the institution fails.

• Coverage runs to $250,000. Insurance applies per depositor, per institution, per ownership category — and it's automatic, with nothing to sign up for.

• Don't confuse an MMA with a money market fund. An MMA is an insured deposit account, while a money market fund is an uninsured investment that can lose principal.

• You can protect more than $250,000. Joint accounts, retirement accounts and trusts each get their own $250,000 limit, and spreading balances across institutions extends coverage further.

• Balances above the limit carry risk. Money over $250,000 becomes a claim against the failed bank and may take months to recover, with no guarantee of the full amount.

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Are Money Market Accounts Safe? Quick Answer

Money markets are safe, thanks to the insurance of up to $250,000 per depositor, per institution and per ownership category at FDIC and NCUA member institutions. Here's why:

• Coverage is automatic at FDIC and NCUA member institutions

• The coverage limit is a generous $250,000 per depositor, per institution and per ownership category, meaning you can potentially get coverage on multiple different accounts

• Money market accounts have essentially zero market risk, far less than with other investments like individual stocks or funds 

• MMAs are in a separate, more secure category than money market mutual funds

That last point can cause some confusion, but it's an important distinction. A money market fund is an investment product that has no guarantees or insurance, even though the name on the label is nearly identical.

What Makes a Money Market Account Safe?

What's Covered by FDIC/NCUA Insurance

Both the FDIC and the NCUA provide insurance for qualifying deposits of up to $250,000 per depositor, per institution, per ownership category. 

What's Not Covered

FDIC/NCUA insurance only extends to deposit accounts. Investments, like money market funds, are therefore not covered.  

Here’s a look at some examples of what’s covered and not covered, according to the FDIC:

A money market account is a deposit account, plain and simple. The bank holds your cash, pays you interest and the government insures the balance. That's the very definition of a deposit account. But a money market fund is an investment: a mutual fund.

When you buy a money market fund, you're buying shares, not making a deposit. The SEC calls this out in no uncertain terms, explaining that money market funds aren't insured the way that bank accounts are, and you can lose some of your principal as there's no $250,000 insurance.

How To Confirm Your Money Market Account Is Actually Insured

Money market accounts are generally covered by FDIC/NCUA insurance. But although the vast majority of financial institutions are covered, some may not be insured. Before you deposit any amount of money at a bank or credit union, follow these steps to confirm that you’re fully insured: 

1. Look for the FDIC or NCUA sign. These are usually posted at branches, in marketing materials and somewhere on the account opening page online.

2. Search for the bank by its exact legal name in the FDIC's BankFind tool. For credit unions, use the NCUA's Find a Credit Union tool instead. If the financial institution isn't listed, it may not be insured.

3. Make sure that you're opening a deposit account, specifically. Many funds have similar-sounding names, so be sure that you're not opening a mutual fund or other investment account by accident. 

4. If your balance is creeping toward $250,000, check how ownership categories work. That amount of coverage is available for each separate type of account you might have, meaning joint accounts, retirement accounts and trusts, for example, each get their own $250,000 coverage.

5. If you're over the $250,000 limit, spread larger balances across different institutions or across ownership categories at the same firm so that you don't have any uninsured assets.

That last step is the one people often skip until it's too late. But it costs nothing and takes little by way of time. It matters most right after a windfall, like an inheritance, a home sale or a bonus, when a balance suddenly jumps well past the coverage limit. Oftentimes, it can escape notice.

What Happens to Your Money if the Bank Fails?

When you open a new money market account, one of the last things you're probably thinking about is what happens if the bank fails. As that scenario has actually played out numerous times in the past, however, there’s already a playbook that should put your mind at ease.

1. A regulator, not the FDIC itself, actually closes the bank. Usually, it’s a state agency or the Office of the Comptroller of the Currency, a division of the U.S. Treasury.

2. By this point, a healthier bank will typically agree to take over the deposits of the failed institution. For account holders, the only sign that anything even happened is usually just a new name on their statement.

3. If there's no buyer, the system still works. In that scenario, the FDIC itself will simply pay insured depositors directly, per FDIC.gov.

4. The goal of the FDIC is to get your money to you within two business days of the closure, often the next one.

If You Have More than $250,000 in Your Account

For accounts larger than $250,000, things happen a bit differently. While your money doesn't vanish into thin air, it can take longer to get it back, and in some cases, you might lose some principal.

To pay outstanding claims, banks will sell their remaining assets over a period of months or even years. If there’s enough money generated to pay what you’re owed, you’ll be made whole. But there’s no guarantee you'll recover the full amount.

That's the reason why it's important to spread out your assets among different types of accounts or institutions if you have over $250,000. If you remain under that threshold, however, the cash in your money market account is protected and considered safe, even in the event of a bank failure. 

FAQ

Is a money market account better than a high-yield savings account?

“Better” is a subjective word, and the answer depends on your financial needs. Rates between the two accounts are often comparable, although HYSAs sometimes pay slightly higher yields. But MMAs often add check-writing or debit access that’s not available with a savings account. 

Can you lose money in a money market account?

Money market accounts are insured when they're held at an FDIC- or NCUA-insured financial institution, so there's no market risk on the insured balance. Your principal isn't tied to stock or bond prices. You can lose purchasing power, thanks to the rising costs caused by inflation, but you can’t lose actual principal unless you’re holding an amount in excess of the FDIC/NCUA insurance limits. 

How much money can you safely keep in one account?

FDIC/NCUA insurance covers up to $250,000 per depositor, per institution, per ownership category. If you exceed those limits, your principal is at risk, but only if the bank becomes insolvent. 

Are online-only banks' money market accounts as safe as traditional banks?

Yes, money at an online bank is as safe as at a traditional bank, assuming the bank is FDIC-insured. Most legitimate online banks are. The same coverage applies even if a bank doesn’t have a single physical branch.

Key Terms

• Money market account (MMA): A deposit account at a bank or credit union that pays interest and often adds check-writing or debit access. Balances are covered by FDIC or NCUA insurance.

• Money market fund: A type of mutual fund sold by brokerages. It's an investment regulated by the SEC, not a deposit, so it carries no FDIC or NCUA insurance and can lose principal.

• FDIC (Federal Deposit Insurance Corporation): The federal agency that insures deposits at member banks up to $250,000 per depositor, per bank, per ownership category.

• NCUA (National Credit Union Administration): The federal agency that insures deposits at member credit unions, with the same $250,000 coverage limits as the FDIC.

• Ownership category: How an account is legally held — single, joint, certain retirement accounts, trusts — each of which gets its own $250,000 coverage at the same institution.

• Deposit payoff: When no healthy bank buys the failed institution's deposits, the FDIC pays insured depositors directly, usually within days.

Sources

• SEC (Investor.gov). Money Market Funds: Investor Bulletin.

• FDIC. Your Insured Deposits.

• FDIC. BankFind Suite: Find Insured Banks.

• NCUA. Credit Union Locator & Research a Credit Union.

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