Which Money Market Accounts Are Not Insured?
Money market accounts are interest bearing savings accounts that you can establish at a bank or credit union. Money market accounts are federally insured. However, investors sometimes confuse money market accounts with money market funds. When you buy a money market fund, you are buying shares of a mutual fund and these funds like all mutual funds are not federally insured.
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Federal Deposit Insurance Corporation
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The Federal Deposit Insurance Corporation (FDIC) protects funds held in banks but not credit unions. The FDIC provides $250,000 of coverage for every account holder at each bank. People listed as pay-on-death (POD) beneficiaries on accounts are provided with $250,000 of deposit coverage. If your bank goes bankrupt, any funds held in your money market account are insured unless your total account balances exceed $250,000. Excess funds are not insured although you can extend the protection levels on your accounts by adding co-owners and POD beneficiaries.
Share Insurance
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Credit unions are insured by the National Credit Union Administration. Since credit unions are member-owned organizations, the NCUA calls this insurance "share insurance" rather than deposit insurance. Credit union members are insured up to $250,000 and coverage extends to POD beneficiaries. The NCUA, like the FDIC, enjoys federal backing, which means money market accounts at credit unions are just as safe as money markets held in banks.
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State Insurance Funds
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Currently, all newly formed banks and credit unions are required to pay insurance premiums to either the FDIC or NCUA. Most existing financial institutions are protected by these two entities but some are insured by state insurance funds. State funds normally provide coverage on a dollar-for-dollar basis without limitation. In many states, state insurance funds also provide insurance coverage on funds at FDIC member banks that exceed the federal insurance limits. Therefore, at some institutions your money market accounts enjoy full insurance protection.
Money Market Funds
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Money market funds are ultra-conservative investment funds that contain securities such as Treasury bills and certificates of deposits. A share in money market fund normally costs $1 and shareholders receive interest in the form of share dividends. Shares very seldom lose value but in theory a share could become worthless if the issuers of the underlying securities go bankrupt or default on interest payments. During market downturns many investors move their funds to the relative safety of money market funds but these funds have no principal guarantees.
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References
- Federal Deposit Insurance Corporation: Deposit Insurance FAQs
- National Credit Union Administration: Consumer Share Insurance Tool Kit
- Securities and Exchange Commission: Money Market Funds
- Bankrate.com: Banks Offer Excess Deposit Insurance; Don Taylor; August 2008
- Bankrate.com: Time to Open a Money Market Account; Geoff Williams; August 2010
