Q: Are money market accounts insured by the FDIC?
A: That depends on what you mean by "money market accounts." It is important to distinguish between money market savings and money market funds when determining FDIC insurance coverage.
Money market savings accounts vs. money market funds
The two names are very similar: money market deposit accounts, and money market funds. They are both liquid assets offering similar (generally relatively low) interest rates. However, for all the similarities, there is a critical difference.
Money market savings accounts held at participating FDIC-insured institutions are covered. Money market funds, on the other hand, are a form of mutual fund and as such they are not covered by FDIC insurance.
Why money market funds have restrictions
This lack of insurance for money market funds does more than open up the possibility of losses in those investments. A couple years ago the U.S. Security and Exchange Commission adopted reforms (inspired by the 2008 financial crisis) that could restrict the liquidity of money market funds.
Rules for money market funds
For one thing, the SEC changed accounting rules for money market funds so that their market values can now vary. Therefore, if a fund is trading below what you paid for it, you cannot count on getting all of your original value back when you need it. Also, to prevent runs on money market funds in times of financial stress, the SEC also now allows fund companies to restrict withdrawals under certain circumstances, or impose a fee for those withdrawals. Either of these could impact the availability of your money.
So, generally speaking, both money market deposit accounts and money market funds provide stability and liquidity. However, if you want absolute stability and liquidity, you should look at money market deposit accounts.
FDIC insurance limits for money market accounts
When discussing FDIC insurance coverage, it is always wise to review coverage limits.
For one thing, the insurance only applies to participating institutions, and to certain deposits products. You can find out if a certain institution is has FDIC insurance coverage by using the "bank find" feature on the FDIC website. Banks that are covered by FDIC insurance may offer products that are not covered, so it is important to make sure you are signing up for a type of account which is covered.
Understanding limits for individual, joint accounts
Even in covered accounts, FDIC insurance is not unlimited. Generally speaking, FDIC insurance limits go up to $250,000 for individual accounts, and $500,000 for joint accounts. Even if an individual has multiple accounts at an institution, only $250,000 in total is covered at that institution. You can obtain more coverage by spreading your deposits around to multiple banks.
Other accounts with FDIC insurance coverage
Along with money market accounts, FDIC insurance also covers the following at participating institutions:
- Checking accounts
- Negotiable Order of Withdrawal (NOW) accounts
- Savings accounts
- Time deposits such as certificates of deposits (CDs)
- Cashier's checks and money orders issued by a bank
FDIC insurance is one of those things people take for granted until times when the financial system is under duress. You are wise to check on it now, so you don't have to worry about it when it matters most.
Comment: Do believe FDIC insurance limits for money market accounts are enough for your deposits?
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