Money Market Account Information
Money market accounts are offered through banks, credit unions, and savings and loan associations. These accounts offer a simple and popular way to save, while earning a bit more in interest than the typical bank savings account. Some banks require minimum deposits to open or maintain a money market account.
Money market funds, while similar products, are offered through mutual fund companies.
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Features of Money Market Accounts
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Money market accounts operate just like regular savings and checking accounts. They earn more interest than regular savings accounts because banks invest deposited funds in short-term securities.
Banks invest these funds mostly in commercial paper (short-term lending between banks and corporations), certificates of deposit and U.S. Treasury Bills. The risk to these funds is very small because they are held for very short time frames. The government has strict regulations on the types of investments banks can make with money market account funds.
FDIC Insurance
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Bank, credit union, and savings and loans money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC).
The FDIC operates an an independent federal agency. The FDIC is backed by the United States government, and no funds have been lost by a person who had funds deposited at an FDIC-insured bank.
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FDIC Insurance Limits
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There are limits on FDIC insurance. Accounts are insured at each bank up to $250,000 per individual. On January 1, 2014, the insurance will be limited to $100,000 per individual at each bank.
A person's accounts are insured up to the full amount of FDIC coverage at each bank at which they have an account.
Money Market Mutual Funds
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Many mutual fund companies offer money market mutual funds. These funds invest in the same types of securities as bank money market accounts.
Money market funds are not FDIC insured. Money market funds sometimes offer slightly higher interest rates by investing in longer-term, and therefore riskier, securities.
Money market funds still are considered a very safe investment. Only a few funds have lost investors' money in the decades they have been offered.
Considerations
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Money market accounts are safe and convenient places to keep cash or an emergency fund. These accounts are now available from your brick and mortar bank or through Internet bank accounts.
A certificate of deposit (CD) may offer higher interest rates than a money market account. However, a CD requires you to lock up your money for at least 6 months, or pay penalties to withdraw the money.
Money market accounts are also available as checking accounts.
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References
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