Money Market Accounts Safety
Money market accounts, which include money market deposit accounts and money market mutual funds, are safe investments. However, the reasons for the accounts' safety differs.
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Types
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A money market deposit account, also called a money market fund, is a deposit account that offers a higher interest rate and requires that you keep a larger amount of money in the account. A money market mutual fund is an investment that pools money and invests it in short-term debts.
FDIC Insurance
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FDIC insurance covers money market deposit accounts in case the bank fails, so the money in the account is protected.
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FDIC Limits
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FDIC insurance coverage is limited to the first $250,000 of your covered accounts at each bank.
Money Market Mutual Fund Regulations
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The Securities and Exchange Commission restricts money market mutual funds to debt securities that will mature in less than 13 months. The average maturity period of the all-debt securities held in the account must be under three months.
Rates of Return
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Money market deposit accounts have a set interest rate, so you can safely expect to accrue a certain amount of interest. Money market mutual funds' rate of return varies depending on the performance of the investments, with high-performing funds generating slightly higher rates than money market deposit accounts. According to Investopedia.com, they return between 1 and 3 percent, and they almost never lose value. Both types will usually earn more than savings accounts and will be comparable to Certificates of Deposit, depending on market conditions.
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