Personal Finance

Money Market Account Vs Money Market Fund: Which is FDIC Insured?

Name: Money Market Account vs. Money Market Fund
Brand: Axos Bank

May 31, 2019

While money market accounts are insured by the FDIC (or the NCUA if the account is held at a credit union), money market funds are not. Key differences between these accounts can impact your wealth.

What is a money market account?

Money market accounts are akin to a hybrid between savings and checking accounts.

Like savings accounts, money market accounts generate higher interest yields than checking accounts. Because the customer has limited access to funds, banks can manage these accounts at a lower cost and then return the yield to the customer.

Online banks typically generate an even higher interest yield, as their lower overhead costs allow them to provide a greater return.

Like checking accounts, money market accounts provide direct access to funds.

Unlike checking accounts, customers’ access to funds are limited. Many banks only allow up to six withdrawals during a statement cycle and may also require a minimum initial deposit.

Because the money market account is held at a bank, it is insured for up to $250,000 by the FDIC, per depositor (or the NCUA if deposited at a credit union). If the account has joint ownership, it is insured for up to $250,000 per co-owner.

What is a money market fund?

A money market fund is a specific type of mutual fund which allows investors to pool money to purchase short-term debt securities. Essentially, they are short-term loans to creditworthy governments or corporations.

A money market fund’s main objective is to keep a net asset value of $1 per share. That means if you invest $5,000, the goal is to get a return of $5,000. Money market funds will also produce a nominal yield depending on the interest rate.

The high liquidity of money market funds is also an attractive feature. As with checking or money market accounts, investors can execute withdrawals via check or wire transfer. But before doing so, you should ensure withdrawals won't prompt a “liquidity fee."

Depending on which fund you choose, money market funds may also be tax-exempt.

Because of the Great Recession, money market funds have seen historically low rates. The prospect of utilizing these funds has been unattractive to many investors. However, as the Federal Reserve continues to raise its rates, money market funds are sure to become more appealing.

Unfortunately for risk-averse investors, money market funds are not insured by the FDIC.

Money market account or money market fund – which is best for you?

That, depends on your goals.

If your priority is safety, consider money market accounts. They’re insured for up to $250,000 by the FDIC or NCUA, and their easy accessibility makes them more attractive than savings accounts.
If your priority is higher returns, consider money market funds. While interest rates for these funds have seen a historic low, the rates will continue to increase as the Federal Reserve raises its own.

As always, consult with your financial advisor to determine the best course of action.

Is expanded FDIC insurance coverage available?

There are several strategies you may consider if you’d like to expand your FDIC insurance coverage, many of which are based on account ownership. That’s because the FDIC coverage limit is per depositor, per institution, and per ownership category.

Here’s how this coverage breaks down:

Per depositor: Coverage is based on individuals instead of accounts; if you have multiple accounts within a bank, the balances are added together.
Per Institution: Coverage is specific to each bank’s FDIC certificate; if you have accounts at multiple federally insured banks, they are insured separately.
Per ownership category: Coverage is separate for different ownership categories, including beneficiaries. If you have individual accounts and joint accounts, your maximum coverage jumps to $500,000; if you have individual accounts with three beneficiaries, your deposits are covered for up to $1 million.

Utilizing multiple banks and having different ownership categories (such as individual and joint accounts) is one way you can expand the amount covered. Revocable trust accounts, payable-on-death accounts, and adding beneficiaries are additional ways to your restructure your accounts to maximize your insured amounts.

Some banks also participate in insured cash sweep networks that enable you to streamline the expansion of your FDIC insurance coverage, eliminating the hassle of maintaining multiple accounts and bank relationships. For example, Axos Bank works with IntraFi^® Network Deposits^SM to provide multimillion-dollar coverage through InsureGuard+ Savings, one of the options available through our Premier banking program. Allowing you to expand your coverage while earning a competitive interest rate.

Protect Your Money With Axos Bank

If you’d like to grow your savings while ensuring your funds are protected, Axos Bank is here to help. We have several options that provide attractive yields and FDIC insurance coverage.

One of these safe, high-interest yields options is our High Yield Money Market account, which features zero monthly maintenance fees and is insured for up to $250,000 by the FDIC.

If your balance exceeds the FDIC insurance limit, our Premier Banking Team is available to provide expert FDIC insurance guidance. Schedule an appointment with them online or call them at 855-818-4113 for support.