Are money market accounts safe? Here’s what you should know

If you’re on the hunt for a secure place to stash your cash while earning a competitive interest rate, a money market account (MMA) might be just what you need. These accounts offer the best of both worlds — the safety of a traditional savings account with some of the flexibility of a checking account.

But before you rush off to open an MMA, let’s dive into what makes these accounts tick and whether they’re the right fit for your financial goals.

Key takeaways

• Money market accounts are safe, as long as they’re with an FDIC-insured bank or NCUA-insured credit union. Your funds are protected up to $250,000 per depositor, per institution, per account category.
• MMAs combine features of savings and checking accounts, offering more competitive interest rates along with check-writing and debit card access (though transactions may be limited).
• While MMAs are low-risk, they may come with potential drawbacks such as monthly fees, minimum balance requirements and variable interest rates.

Are money market accounts safe?

The short answer? Yes! Money market accounts are very safe, as long as you choose an account that’s either:

• FDIC-insured (if opened at a bank)
• NCUA-insured (if opened at a credit union)

The FDIC and NCUA are government agencies that protect your deposits if your financial institution goes belly-up. They insure your funds up to $250,000 per depositor, per institution, per account category. So even if your bank or credit union fails, your money is safe up to that limit.

Pro tip: Double-check your institution’s insurance status

“Before opening a money market account, always verify that the bank is FDIC-insured or the credit union is NCUA-insured. While most institutions are covered, it’s better to be safe than sorry. You can use the FDIC’s BankFind tool or the NCUA’s Research a Credit Union tool to confirm an institution’s insurance status.”

— Hanna Horvath, CFP and Managing Editor at Bankrate

How do money market accounts work?

A money market account is a combination of a savings account and a checking account. Like a savings account, an MMA lets you earn interest on your balance. But like a checking account, it often comes with the ability to write checks or use a debit card for cash withdrawals or transfers.

“An MMA is an easy way to earn more than a basic savings account while still enjoying benefits like easy access to your money and the ability to write checks and withdraw cash from an ATM,” says Jaspreet Chawla, senior vice president of savings products at Navy Federal Credit Union.

However, it’s important to note that MMAs typically limit certain types of transactions, like transfers and check-writing, to six per month due to federal regulations. Exceed that limit, and you might face a fee or have your account converted to a non-interest-bearing checking account.

Potential drawbacks of money market accounts

While money market accounts are safe, they’re not perfect. Here are a few potential downsides to keep in mind:

• Monthly fees: Some MMAs charge a monthly maintenance fee, usually around $5 to $10, if you don’t maintain a minimum balance. Look for accounts with no monthly fees or easy-to-meet waiver requirements.
• Transaction limits: Most MMAs restrict certain withdrawals and transfers to six per month. If you exceed this limit, you might face a fee or risk having your account closed or converted to a checking account.
• Minimum balance requirements: Some MMAs require a hefty minimum deposit to open an account or earn the highest interest rate. For example, you might need to deposit $10,000 to score the best rate. Consider your budget and shop around for an account that fits your needs.
• Variable interest rates: Unlike fixed-rate accounts like CDs, MMA rates can fluctuate over time. If rates drop, so will your earnings. Keep an eye on rate trends and be ready to explore other options if needed.

Learn more: Pros and cons of money market accounts

Money market account vs. money market fund

Don’t let the similar names fool you — money market accounts and money market funds are two very different accounts.

A money market account is a type of deposit account offered by banks and credit unions. It’s insured by the FDIC or NCUA, making it a safe place to park your cash.

On the other hand, a money market fund (also called a money market mutual fund) is an investment product offered by banks, brokerages, and investment companies. These funds invest in short-term, low-risk securities like Treasury bills and commercial paper. While generally considered a conservative investment, money market funds are not FDIC- or NCUA-insured.

In short, if safety is your top priority, stick with a money market account over a money market fund.

How much money should you keep in a money market account?

The amount of cash you should keep in your MMA depends on your unique financial situation and goals. As a general rule, it’s smart to keep enough money in your account to:

1. Meet any minimum balance requirements to waive monthly fees or earn the highest interest rate
2. Cover three to six months’ worth of living expenses in an emergency fund

Beyond that, consider your short-term and long-term financial goals. If you’re saving for a major purchase in the next year or two, like a down payment on a house or a dream vacation, a MMA can be a great place to stash that cash and earn interest.

But if you’re focused on longer-term goals like retirement, you might want to explore investment options like retirement accounts or brokerage accounts for the opportunity to earn higher returns, albeit with more risk.

See Bankrate’s picks: Best money market accounts.

The bottom line

Money market accounts can be a safe, flexible option for your savings, combining the earning power of a savings account with the liquidity of a checking account.

As you compare options, don’t forget to read the fine print and crunch the numbers. Look for accounts with competitive interest rates, low fees and minimum balance requirements that fit your budget.

Ready to get started? Here’s our step-by-step guide to opening a money market account.