FDIC vs. SIPC for Money Market Funds Protection

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You might think the terms "money market deposit account" and "money market fund" are interchangeable. While they're related and work in similar ways, they aren't the same thing. One big difference involves insurance protection. The Federal Deposit Insurance Corporation insures money market deposit accounts up to a certain limit, while the Securities Investor Protection Corporation offers some protection for money market mutual funds if held by a member brokerage.

Money Market Account

  • The FDIC insures your money market deposit account funds held in banks or savings and loans up to $250,000, as of the date of publication. That's the same guarantee offered for other banking deposit products, including checking accounts, certificates of deposit and savings accounts. Your money is backed by the "full faith and credit" of the U.S. government. FDIC insurance does not extend to certain other products that banks might offer, including life insurance and annuities.

Money Market Mutual Fund

  • If you invest in a money market mutual fund, your cash is not protected by a federal agency. Instead, the SIPC, a nonprofit membership corporation created under the Securities Investor Protection Act, insures these securities for up to $500,000. However, while money market mutual funds historically trade at $1 per share, it is possible that a failing fund will "break the buck" and go below that amount. The SIPC considers a money market fund as securities, so it replaces the number of shares you have at the time of the brokerage failure. If it happens that your shares are no longer worth $1 but 97 cents, for example, that is the replacement value you receive. While it's unlikely that a money market fund share will break the buck, SIPC coverage doesn't include net losses.

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