Are Money Market Accounts at Banks Covered By the FDIC?
Many banks offer customers savings account alternatives called money market deposit accounts. The money market accounts are covered by the Federal Deposit Insurance Corp. because they are standard-issue bank products. Money market accounts cater to people with large balances who do not want to lock money into illiquid instruments such as certificates of deposit.
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FDIC History
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During the 1920s, 600 banks failed per year on average. In 1933 to address public fears about bank stability, Congress passed the Banking Act of 1933. The act addressed multiple issues related to the industry, but its key component was the creation of the Federal Deposit Insurance Corp. The FDIC assesses fees to member banks and uses proceeds to provide insurance coverage for deposited funds. The FDIC has the ability to increase fees and also raises funds by selling the assets of failed institutions.
Money Market Features
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Money market accounts are categorized alongside checking accounts as demand deposit accounts, which allow customers to withdraw money without prior notice. Unlike checking accounts, money market accounts assess a penalty fee for excessive withdrawals. Standard money markets permit up to six withdrawals per month, with no more than three of the withdrawals made with a check. Most money markets assess a monthly service fee if customers do not maintain an average daily balance of $10,000.
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Benefits
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Money market accounts generally offer higher rates of return than bank savings accounts. Most money market accounts have tiered interest rates that pay higher returns for people with balances above $10,000, $50,000 or $100,000. Price points vary from bank to bank, but rates for high balances are comparable to short-term CD rates but with the benefit that the money is completely liquid. Many banks offer sweep money market accounts linked to corporate checking accounts that move surplus funds into high-yield money market accounts each night.
Considerations
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The FDIC covers deposits for up to $250,000 per person, per bank. Balances in a single-ownership account above that limit will not be protected. To increase coverage limits, account holders can add co-owners or beneficiaries to an account. The FDIC provides $250,000 for each additional owner or beneficiary. To increase coverage further, people can open bank accounts at multiple banks and add sufficient beneficiaries to gain maximum FDIC protection.
Misconceptions
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Many consumers confuse bank money market accounts with money market mutual funds but the latter are not FDIC-insured. Brokerage houses use investment money market funds to stow customers' surplus cash. The accounts invest in conservative short-term instruments such as commercial paper, Treasury bills and commercial certificates of deposit. Between September 2008 and September 2009, the U.S. Treasury provided a temporary guarantee for money market mutual funds but in normal circumstances the accounts are not government-backed.
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