Are Money Markets SIPC Insured?

There are two types of money market investment in the United States: money market mutual funds and money market savings accounts. In many instances, the former are insured by the Securities Investor Protection Corporation (SIPC), while the latter normally have the protection of the Federal Deposit Insurance Corporation (FDIC). The funds have different insurance protection, because the FDIC only protects bank-issued products, whereas the SIPC covers securities.

SIPC Function

In 1974, the SIPC was founded by registered investment companies as a nonprofit, non-government-backed entity designed to protect consumers from losses caused by investment firms filing bankruptcy. Not all brokerage firms are SIPC members, and firms that are SIPC members must prominently display the SIPC logo in sales offices. The SIPC provides up to $500,000 of insurance coverage to each investor with accounts at member firms. The SIPC limits cash coverage to $100,000, which impacts people who maintain high cash balances between investments.

Money Market Mutual Funds

Money market mutual funds contain short-term conservative investments such as marketable bank certificates of deposit, Treasury bills and commercial paper. Money market mutual fund shares are intended to hold a constant net asset value of $1 per share. The yield on the shares varies in the same way interest rates rise and fall on bank money market and savings accounts. Most people use money market mutual funds as safe haven investments during periods of stock market volatility.

Federal Protection

In 2008, the U.S. Treasury Department created a temporary guarantee program to protect funds held in money market mutual fund accounts. The U.S. Treasury feared fund shares might "break the buck," meaning they would fall below par value of $1 per share as a result of a steep market downturn. Mutual fund companies could participate in the program if they paid a fee to the Treasury department. The program ended in September 2009, and the federal government no longer provides backing to any money market mutual funds.

Bank Money Market Funds

In 1982, Congress passed the Garn-St. Germain Depository Institutions Act, which enabled banks and credit unions to create money market accounts that worked similarly to money market mutual funds. The money market savings accounts were designed to offer an alternative type of liquid, interest-bearing investment to individuals who did not feel comfortable investing in the stock market. The FDIC provides insurance coverage on money markets and other depository accounts of up to $250,000 per account owner per bank.

References

• Securities Investor Protection Corporation: Brochure
• Federal Deposit Insurance Corporation: Deposit Insurance Frequently Asked Questions
• FINRA: Treasury's Guarantee Program for Money Market Mutual Funds: What You Should Know
• Securities and Exchange Commission: Money Market Funds
• Federal Reserve bank of Chicago: The Garn St.Germain Depository Institutions Act of 1982

Resources

• Bankrate: Money Market Fund Investing