How Do Bank Held Money Market Funds Work?
Bank held money market funds work in much the same way as those held by a broker or brokerage firm, but are more commonly called money market accounts. The primary difference is the level of security offered with your money market investment. Bank held money market funds are generally going to be insured by the Federal Deposit Insurance Corporation, as long as the bank you go to is an FDIC-insured institution.
Other People Are Reading
-
Function
-
The principal function of a bank is to use deposits received through a variety of investment instruments to loan money to individuals and businesses. With the help of the Federal Reserve, most banks are able to lend far greater amounts than their total deposits received. Deposits are held in the form of cash, which is insured by the FDIC for up to $250,000 for each account holder in every FDIC-insured banking institution. The insurance includes IRAs, passbook savings accounts, CDs and money market deposit accounts.
FDIC
-
Although the FDIC operates independently of the United States Government, it is fully backed by the credit of the government. The FDIC is solely funded by the insurance premiums received by its member institutions and the money earned on those funds. Even if the bank that holds your money market account goes under, if your investment was worth $10,000, you will recover $10,000.
-
SIPC
-
Brokers typically function as the "middle man" between the securities (investment instruments) market and their investor clients, buying and selling securities for those clients. They are closely regulated by the Securities and Exchange Commission, and many brokerages are insured by the Securities Investor Protection Corporation, or SIPC, but the type of protection given is slightly different. If your $10,000 investment in a broker-held money market fund buys you 1,000 shares in that fund, and the brokerage company goes out of business, the SIPC only guarantees you will get your 1,000 shares, regardless if those shares are still worth $10,000.
Considerations
-
Generally, money market funds, also known as money funds, are available through brokers as short-term debt investments (bonds and bank debts) held by the particular mutual fund, for which the value of a share should never fall below $1. Banks and credit unions usually offer money market deposit accounts, called MMDAs, which are basically interest-earning savings accounts that come with higher interest rates than traditional passbook savings accounts.
Features
-
Bank held money market funds, or money market accounts usually require larger deposits to gain higher interest rates. With an MMDA you are limited on the number of monthly withdrawals, and often you are required to keep a minimum balance in the account. You may also need a minimum deposit to open your money market account, anywhere from one dollar at some institutions to $10,000 at others.
-
