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Are money market accounts safe?

In general, money market accounts are perfectly safe. But there are some risks to consider.

Yahoo Personal Finance· Getty Images
4 min read

A money market account (MMA) is generally a safe place for your money. You can open a money market account at a traditional bank, online bank, or credit union, where your deposits are insured.

Even so, money market accounts do come with some potential disadvantages and risks, including large minimum balance requirements, transaction limits, and fees.

Read on to learn what money market accounts are, what safety measures they offer, and whether opening one is right for you.

A money market account is a type of deposit account that you can open at most banks and credit unions. Like a regular savings account, a money market account earns interest, though MMAs typically earn higher rates than traditional savings accounts do. However, in exchange for that higher rate, you may need to meet a higher minimum balance requirement.

Money market accounts also provide more accessibility than a savings account, often including checks and a debit card. However, some financial institutions enforce transaction limits, so the funds in a money market account may not be quite as accessible as they would in a checking account.

Also, like other types of deposit accounts, MMAs are usually insured by the Federal Deposit Insurance Corporation (FDIC) at banks and the National Credit Union Administration (NCUA) at credit unions.

See our picks for the 10 best money market accounts available today>>

Don’t confuse money market accounts with money market funds. While the former is a type of insured savings account, money market funds are a type of investment.

A money market fund, or money market mutual fund, invests your money in low-risk securities. But unlike a money market account, money market funds aren’t insured. In other words, it’s possible to lose money with a money market fund. Plus, money market funds may not offer the same accessibility as money market accounts.

Generally, a money market account is a safe place to put your cash. Unlike money market funds, which invest your money in market securities, MMAs are deposit accounts that are federally insured, guaranteeing your deposits up to $250,000 if the financial institution fails.

You can rest assured you won’t lose any of your principal deposit in a market account in most cases. The exception is if you incur monthly fees or other penalties that exceed your earned interest.

Money market accounts may also be a safe way to hedge against inflation. Because they tend to offer higher rates than traditional savings accounts, MMAs may do a better job of outpacing inflation and maintaining the value of your deposits over time.

Plus, while MMAs provide security, they also make it fairly easy to access your funds when you need them — unlike certificates of deposit, which may have early withdrawal penalties, and investments, which can be less liquid.

Money market accounts are generally safe and offer several advantages for savers. But they also have a few drawbacks, which are worth evaluating before you open an account.

  • High minimum balance requirements: Though it’s not the case across the board, many MMAs have steep minimum opening deposit requirements or minimum balance requirements in order to earn the highest advertised rate and/or avoid fees. These may be prohibitive for those without a sizable upfront deposit.

  • Potential transaction limits: Though the Federal Reserve no longer enforces withdrawal limits on savings and MMAs, some financial institutions still do. Depending on where you bank, your MMA may limit the number of certain types of transactions you can perform each month.

  • Better rates elsewhere: If you’re looking for the biggest return on your savings, an MMA may not always be the right choice. High-yield savings accounts and CDs often come with comparable or higher interest rates, so be sure to shop around and compare your options before deciding where to deposit your money.

  • Potential monthly fees: Some money market accounts may come with monthly fees, but it depends on where you bank. You may be able to avoid monthly fees by maintaining a minimum balance or meeting other criteria, so check on these details before opening an account.

A money market account can be a good option if you’re looking for high interest rates, along with the security of a savings account and the flexibility of a checking account. However, it’s important that you have enough money to meet an MMA’s minimum balance requirement.

On the other hand, if you want to set aside savings without the temptation to spend it — for example, if you’re building an emergency fund — you may prefer a savings account or CD.

Finally, some MMAs may have transaction limits, depending on where you bank. So, if you need frequent access to your funds, you may be better off with a checking account.