Are money market accounts safe?

A money market account (MMA), also known as a money market deposit account (MMDA), is a type of interest-bearing deposit account offered by certain banks, credit unions, online banks, or other financial institutions (not to be confused with a money market fund, which is a type of investment product). They are known for providing competitive interest rates, generally higher than traditional savings accounts and sometimes even surpassing those of high-yield savings accounts. MMAs may also offer hybrid features of a savings and banking account through limited access to funds via debit cards and checks, but this feature is not guaranteed.

Money market accounts offer accessible savings options, giving you the flexibility to transfer funds between accounts, but withdrawals may have a monthly cap depending on the institution. This account type is also known for its higher interest rates, which may help boost your savings. Higher interest rates often come with higher minimum deposits when opening an MMA, but that is not the case at Raisin. To open an MMA through the Raisin platform, you only need a $1 minimum.

When it comes to the safety and security of your savings, you may be wondering how safe money market accounts are. MMAs are generally considered a safe, low-risk savings option. Some safety features include: 

• FDIC or NCUA insurance: Most banks are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) for credit unions, which covers up to $250,000 per depositor, per institution. You may want to check directly with your bank to ensure your MMA is covered by FDIC insurance.

• Liquidity and withdrawal limits: MMAs still give you access to your money, making them a liquid savings option that offers flexibility. Withdrawal limits can help you prevent excessive account activity (or potentially excessive spending) to keep your savings goals on track.

• Stable value: Unlike stocks or mutual funds, your principal in an MMA does not fluctuate with market conditions. Your balance will remain intact unless you withdraw your money.

In short, money market account safety should not be a major concern if your bank is insured, but it is always best to double-check with your institution.

Money market accounts can be an option to help you reach short-to-medium-term financial goals while still giving you accessibility to your funds. Some reasons for considering a money market account may include:

• You want to boost your savings: MMAs offer competitive interest rates that can help you work towards your savings goals.

• You want to build an emergency fund: If you want to start an emergency fund, an MMA can help you get started. Interest rates can help you earn more on your funds, and their flexibility can ensure you have access to your money in case of an emergency. However, you should be aware of potential withdrawal limits.

• You want occasional access to your funds: If you want to set money aside but ensure you still have some liquidity and occasional access to your savings funds, an MMA might be a viable option for you.

• You are saving towards short- or medium-term goals: If you are saving for a down payment on a house, a new car, or even your dream vacation, an MMA can help you work towards reaching those goals.

Money market accounts are a generally safe and conservative option to diversify your cash savings, but you might also want to be aware of the potential risks or other concerns, including:

• Variable interest rates: MMAs usually do not offer fixed rates, meaning your interest rate can fluctuate with inflation and other market conditions, which can impact your earnings over time.

• Inflation risk and purchasing power: Interest earned may not keep up with inflation over time, which can lead to a decline in your money’s purchasing power.

• Bank-specific restrictions or fees: Some institutions may charge maintenance or service fees, which can offset interest earned. Raisin does not charge maintenance or service fees.

• Minimum balance requirements: Many MMAs require relatively high minimum balances to avoid fees or earn the best rates, and falling below this threshold can eat into returns. Raisin’s minimum balance requirement is just $1, so you won’t have to worry about extra fees.

• Lower returns than other investments: While a safer alternative, MMAs typically earn less than other investment options like stocks, bonds, or even certificates of deposit (CDs) if you commit for a longer term. However, higher potential returns are often associated with higher risks.

Money market accounts can be a smart choice if you’re looking for a safe place to grow your savings while maintaining access to your funds. You might consider them for short- to medium-term goals, emergency funds, or if you simply value stability and insurance protection. However, because returns are modest and subject to variable rates, MMAs may not be the best option if your goal is long-term growth or outpacing inflation. Always compare account terms and confirm FDIC or NCUA insurance before opening an account.

If you’re ready to open your own MMA, Raisin is here to help. The Raisin marketplace gives you access to MMAs and other high-yield savings products with competitive interest rates to help you get the most of your savings. Explore account types, compare interest rates, and sign up today to start maximizing your savings potential!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.