What is a Money Market account and what is its function? How does a money market work and can it protect large amounts of money? I want to protect my money and the FDIC only protect up to $250k. I don't have any knowledge of where to park my money safely. That's why I am here.

  • See too this answer money.stackexchange.com/a/3646/3361 – Ellie Kesselman May 17 '14 at 19:55
  • Make sure you don't confuse money market accounts (e.g. at a bank) with money market mutual funds. I can't think of any money market mutual fund that is FDIC insured, whereas some money market accounts (depending on the institution) are FDIC insured. – dg99 May 18 '14 at 2:20

Money market accounts, insured in the same way as other deposits, are strange hybrids of traditional bank deposits and bond mutual funds.

Because of the high inflation of the 1970s, banks were starved of deposits and could not produce loans at sufficient rates. For this reason, they desired a way to fund loans, and Congress enacted the Depository Institutions Deregulation and Monetary Control Act which permitted a new form of account that retained the functionality of a deposit account, such as checking and now electronic transfers, yet transferred the risk to the account thus most of the profit. This allowed banks to fund each others' new loans through packaging them into asset backed securities to be held in these special accounts.

As an added "protection", they are not permitted to carry a market value less than what's owed to depositors and are forcibly liquidated and paid in such event. This is a rare occurrence because of the nature of the assets held: credit assets such as commercial paper, mortgages, and corporate bonds. This is the opposite case of deposits because so long as a bank can maintain payments on its liabilities and satisfy a few other regulatory requirements, non-regulation satisfying assets could theoretically carry a zero balance, meaning that a bank could owe depositors more than what could be paid by liquidating all assets.

Money market accounts will typically pay a higher rate because of their structure. While inflation is low and immediate term interest rates set by the central bank are also low, the net figure will not appear high, but the ratio will be fantastic, usually something like 3x.

The one downside to money market accounts is that withdrawals are restricted by frequency. This is not such a problem as before since brokerages are now issuing debit cards tied to brokerage accounts, and excess money can be "swept" into money market accounts, bypassing the regulatory restriction.

In short, money market accounts are currently a far better choice than traditional checking accounts but pay less than savings accounts.

  • 3
    Why do you say "pay less than savings accounts?" – Ender May 24 '14 at 10:01
  • I have the same question as @Ender. I just received a promotional offer from CapitalOne where they are offering 1.00% rate on their money market account. – V_Singh Mar 24 '17 at 18:32
  • Excellent history. However, 2.5 years later, MMAs don't pay nearly the rate of standard savings accounts from online banks. – RonJohn Dec 5 '17 at 15:23

The FDIC guarantee is up to $250,000 per depositor per insured bank. If your goal is primarily to protect your money, you may want to consider depositing your money in multiple insured banks.

I'll leave it to someone else to accurately define money market accounts and how they function, and the (very low) risks you take with them.

Don't forget that inflation will eat into your money. It's unlikely you'll make enough interest either in a savings account or in a money market account to cover the inflation. You should factor this in to your overall investment plan.


My brokerage account (E-Trade) automatically spreads cash balances that exceed the FDIC insured amount into several partner banks, so just about any amount gets insured.

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