Has anybody ever lost money in a money market account?
Since they're a type of savings account that invests in low-risk securities, money market accounts rarely lose money. They're also insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per account type per financial institution.
Can you lose your money in a money market account? In most cases, no. As long as you have up to $250,000 in your money market account at a federally insured financial institution, your money is insured. In the event that the bank is unable to return your funds, the FDIC or NCUA will reimburse you for the amount lost.
However, this only happens very rarely, but because money market funds are not FDIC-insured, meaning that money market funds can lose money.
Key takeaways
They may come with the ability to pay bills, write checks and make debit card purchases as well. Disadvantages of money market accounts may include minimum balance requirements, monthly fees and transaction limits. Also, you might be able to find better yields with other deposit accounts.
Key takeaways
Money market accounts, or MMAs, are safe because they are deposit accounts, not investment accounts. MMAs are usually protected by the maximum insurance limit through FDIC or NCUA.
You can lose money to fees: If your account charges a monthly maintenance fee that you can't get waived, or you end up dealing with other fees, such as excessive withdrawal penalties, your account balance could drop if the fees exceed the interest you earn in the account.
Money market funds are investments with no guarantee of a return or principal protection. You can lose money with a money market fund investment.
Since they're a type of savings account that invests in low-risk securities, money market accounts rarely lose money. They're also insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per account type per financial institution.
Rule 2a-7 requires a money market fund to dispose of a security that is no longer eligible (i.e., first or second tier) or that is in default “as soon as practicable consistent with achieving an orderly disposition,” unless the board finds that “disposal of the security would not be in the best interests of the money ...
Your money is not bound for a predetermined duration. Instead, you can withdraw funds when needed, giving you control over your finances. So, your money is never really stuck. However, MMAs sometimes charge small penalties if your balance drops below a certain amount or you make more withdrawals than agreed.
What is a con of a money market account?
Con: Potential for Fees
Money market accounts can come with various fees, including monthly maintenance fees, excessive transaction fees, and minimum balance fees. These fees can eat into your earnings, so it's crucial to read the fine print and understand the fee structure before opening an account.
If you're saving for something you'll need the money for in less than three to five years, saving in a money market fund may make sense for you. Money market funds are ideal for short-term saving because they invest in highly liquid securities with the objective of capital preservation and income.
Money Market Funds
While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.
One of the biggest disadvantages of a money market account is that some financial institutions may put a cap on how many convenient withdrawals you can make each month. The Federal Reserve once limited consumers to six per month, though this rule was phased out in 2020.
In an unlucky, volatile year, you could lose money. By comparison, savings accounts lack that volatility and risk. Like most deposit accounts in the U.S., high-yield savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC).
Federal Reserve rate cuts can mean lower returns on money market funds, as their yields historically track the Fed's rate path. Investors may want to consider reallocating money to longer-duration fixed income assets to lock in attractive yields at relatively lower risk.
Federal regulations that govern savings account withdrawals don't apply to ATMs. So you can make unlimited ATM withdrawals from your money market account without penalty. Many banks also let you to write a limited number of checks from your money market account. You can't do this with most savings accounts.
Yes, mutual funds can lose money, especially in volatile categories. While they have the potential for great returns, they also carry higher risks due to market fluctuations. Understanding this balance between risk and reward is crucial before investing in mutual funds.
A savings account may be all you need if you're simply saving money for later use. Money market accounts are also good options for saving money for specific goals. However, because they often allow for check-writing and bill payments, you may view this account as more of a transactional account.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so.
Where do you put money market crashes?
U.S. Treasury securities, particularly long-term bonds, are often considered a safe haven during crashes because of their government backing and tendency to rise in value when stocks fall.
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Overall, a money market account makes the most sense if you have a large cash balance and want to earn interest while maintaining easy access to your money through checks, transfers and ATM withdrawals.
FAQs about money market accounts and CDs
If you're saving for a medium- or long-term goal, want to earn a fixed interest rate and want the assurance that your money is safe, a CD can be a good investment.
Yes, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
