Are Money Market Funds Vs. Money Market Accounts Insured?
Money market funds are a type of mutual fund, and the shares you buy in these funds are not federally insured. Money market savings accounts are deposit accounts that you can open at banks and credit unions. Deposits you make in these accounts are insured, but only up to certain dollar limits.
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Money Market Mutual Funds
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Money market mutual funds contain short-term debt securities, such as bonds and certificates of deposit. One share of a money market fund has a par value of $1, and you receive interest on a per share basis. However, although these funds are ultra conservative, shares can lose value. During 2008, the United States Treasury department began to guarantee money market mutual funds so that if a fund lost value the Treasury would cover shareholders losses. However, the Treasury department stopped offering these guarantees in September 2009 and the funds now have no principal protection.
Securities Investor Protection Corporation
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When you buy mutual fund shares you can either buy the funds directly or hold the shares in a brokerage account. If you hold the shares in the brokerage account, you are exposed to both the risk of the shares losing value and the risk that the brokerage firm holding your investment could go bankrupt. However, most brokerage firms are members of the Securities Investor Protection Corporation, a member run organization that insures brokerage accounts. If your broker goes bankrupt the SIPC covers your securities, including money market shares, up to $500,000 per account owner.
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Federal Deposit Insurance Corporation
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The Federal Deposit Insurance Corporation provides insurance coverage of up to $250,000 per account holder per FDIC member bank. This means if your bank goes insolvent, the FDIC covers your combined losses from your checking, savings, money market and certificates of deposit up to the maximum insurance coverage level. State chartered banks that do not belong to the FDIC have to purchase insurance from state guaranty funds that operate in the same manner as the FDIC and provide the same level of coverage.
Credit Union Share Insurance
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The FDIC only protects funds held in banks, but the federally-backed National Credit Union Administration both regulates and insures credit unions. The NCUA, insures deposits in money markets and other accounts up to $250,000 per account holder. However, many credit unions are not members of the NCUA and as with state chartered banks, these credit unions have to buy insurance from state guaranty funds. Credit unions that belong to the NCUA must prominently display the association's logo inside branches.
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