Should I keep my money in a money market account?
It might be worth investing in a money market account when you want a safe place to store your money with a higher interest rate than a checking account, while still having some liquidity features such as check writing. It's ideal for emergency funds or short-term savings goals.
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
First and foremost, money market accounts are typically safe because they're insured by the federal government. If you open a money market account at a federally insured bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your cash per bank, per depositor.
There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.
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.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
- Limited transactions. Some accounts limit certain transfers and withdrawals (known as convenient transactions) to six per month, so this isn't the best account for regular banking. ...
- Deposit and balance requirements. ...
- Fees. ...
- High interest rates. ...
- Flexible access. ...
- Federal insurance.
The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.
| Rank | Fund | Minimum investment |
|---|---|---|
| 1 | Vanguard Federal Money Market Fund (VMFXX) | $3,000 |
| 2 | Schwab Value Advantage Money Fund Investor Shares (SWVXX) | $0 |
| 3 | PIMCO Government Money Market Fund (AMAXX) | $1,000 |
| 4 | Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX) | $3,000 |
Currency markets generally are not as regulated as securities markets. High yield fixed income securities are considered to be speculative and are subject to greater risk of loss, greater sensitivity to economic changes, valuation difficulties and potential illiquidity.
What are bad things about money market accounts?
Money market investing can be advantageous if you need a relatively safe place to park cash in the short term or if you're diversifying a growth portfolio. Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.
Accounts of Charles Schwab & Co., Inc. are insured by SIPC for securities and cash in the event of broker-dealer failure. The Schwab Money Funds are protected as securities by SIPC. Below is a link to information that can be shared with the client at schwab.com.
Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.
Vanguard Cash Reserves Federal Money Market Fund and Vanguard Federal Money Market Fund: 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.
Alternatives to money market funds, money market accounts, and savings accounts include: Certificates of deposit: CDs are term-based savings accounts that lock up your funds for a set time period in exchange for higher interest rates.
Both high-yield savings and money market accounts enjoy FDIC insurance up to $250,000 per person, per bank, and per account type, making them among the safest choices for where to put your money.
For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.
Both CDs and MMAs are federally insured savings accounts, so they're equally safe.
How much should a money market investor be concerned with that risk? Smith: Since their introduction in 1971, money market funds have broken the buck just two times.
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
- Alternative investments.
- Cryptocurrencies.
- Real estate.
Is a money market account a high risk?
Money market accounts offer a low-risk environment with a higher interest rate to grow your money. Money market accounts are insured by the FDIC and can help individuals reach their short-term savings goals.
- Short-term certificates of deposit. ...
- Series I savings bonds. ...
- Treasury bills, notes, bonds and TIPS. ...
- Corporate bonds. ...
- Dividend-paying stocks. ...
- Preferred stocks. ...
- Money market accounts. ...
- Fixed annuities.
When stock market volatility is a precursor to a recession, you may look for safer investments to ride things out. Cash is one option, albeit one with limited growth potential. Investing in money market mutual funds, on the other hand, can offer both safety and growth in the short term.
Money market funds are likely to keep growing if the Fed holds rates at their current level, or raises them further. I've used money market funds on and off for decades with no problems, and consider them to be fairly — though not entirely — safe.
Money market funds aren't insured by the FDIC. Instead, they may be eligible for $500,000 coverage under SIPC when held in a brokerage account. Accessibility.
