Northpointe Bank, Bank
There is very little risk to the principle in holding a money market account with a bank. Your account will be federally insured for at least $250,000. In the event you have more than $250k to deposit, there are options for obtaining additional deposit insurance you can discuss with a banker. Money market accounts are a cross between a savings and checking account - there is more access to the funds than a Certificate of Deposit but not as much as a normal checking account. Rates on money markets right now are often on par with CDs, which make this a very attractive investment option. That said, the biggest risk is in the value of your money - if the account is only paying 0.50 - 1.00% APY; then you're actually losing purchasing power because inflation is running higher than what you're earning on the account. You can look into money market investment funds but those expose you to investment risk. In the end, it's best you meet with a banker and/or investment advisor to review your particular situation and find options that best fit your needs and risk tolerance.
Kathleen Cole, Member
There are no substantial risks with a money market account unless you plan to deposit more than $250,000. The Federal Deposit Insurance Corporation insures funds held in money market accounts up to $250,000 per customer, per bank, so if your balance is lower than that, your money is safe from most common threats. Money market accounts with credit unions are equally insured by the National Credit Union Administration.
Potential Money Market Account Risks
- Missed Opportunity. Money market accounts earn relatively little interest, averaging just 0.06% - 0.48% APY between 2009 and 2022, according to the FDIC. Your money could earn much more interest if it were invested in stocks or bonds. Even a relatively secure investment, like a 12-month certificate of deposit, would have earned a return of around 0.13% - 1.29% APY during the same period of time. When you factor in inflation, funds in a money market account could actually lose value over time.
- Insurance Limits. The FDIC only insures funds held in money market accounts up to $250,000 per customer, per bank, per account ownership category. The NCUA insures funds held in money market accounts administered by credit unions up to the same amount. This means you are guaranteed to be able to retrieve your deposits up to $250,000 even if the bank or credit union fails. However, if your financial institution fails and you have more than $250,000 in a single account or type of account, you could lose your money.
- Overspending. The relative ease of accessing funds in a money market account may tempt you into overspending and derail your financial goals. A money market account is a type of savings account, after all.
Finally, it’s important to note the difference between money market accounts and money market funds. Money market funds are a type of mutual fund (an investment product). Investment products are inherently risky, and the principal held in them can lose value. Money market accounts are a type of savings account offered by a bank or credit union, and they cannot lose value in the same way an investment product can.
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