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Some Money Market Funds are Insured

This article was written by in Investing. 2 comments.


Through December 31, 2009, the Federal Deposit Insurance Corporation (FDIC) insures bank deposit accounts up to $250,000, with the limits returning to $100,000 after that. This includes checking accounts, savings accounts, money market accounts, and certificates of deposit. There are a few nuances to this coverage, so ensure you know the full details of FDIC coverage. This does not cover money market funds, which are occasionally called money market mutual funds.

Money market accounts are similar to savings accounts, and the names are often interchangeable. The main difference is that money market accounts are limited to six withdrawals per month. In my experience, many banks that call their products “savings accounts,” like ING Direct, still enforce this limit.

Money market funds are different than money market accounts and savings accounts. Money market funds are mutual funds offered by banks and brokerages. These products invest in bonds and commercial paper, which make them riskier than money market accounts. Since this type of fund carries more risk, the FDIC does offer insurance. Therefore, if a money market fund loses value or the bank can’t pay funds on withdrawal, the money is lost.

This rarely happens, but it did happen in 2008. At that point, the Treasury Department stepped in and covered the loss. The Treasury now offers an insurance program for money market mutual funds that agree to participate (details here). If the offering bank pays an insurance fee to the Treasury, their money market fund will be guaranteed against losing money. Specifically, the value of the fund will be protect against falling below one dollar per share.

Many banks and brokerages have opted not to participate in this program. Those that do participate, like Vanguard and Fidelity, cover money invested in the funds as of September 12, 2008, and unless extended by a new law the coverage will end in April 2009.

Updated December 20, 2011 and originally published March 8, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 2 comments… read them below or add one }

avatar Yana

I’m surprised you didn’t mention the latest on the FDIC – “Bill Seeks to Let FDIC Borrow up to $500 Billion” from the Wall Street Journal online. The FDIC doesn’t have enough money to be insuring deposit accounts. This is scary. Obama recently said we shouldn’t keep our money in our mattresses. Maybe not, but no bank is very safe. I’m in the process of making some changes myself, based on these factors:

1) A brokerage that also has a bank on the side is risky on two counts
2) The strongest bank is now known to be headed for trouble, but the one that is better today might be in the same position as the first next week
3) Credit unions aren’t insured by the FDIC, but still by the government
4) I’m putting an enormous amount of faith in ING. I’m assuming they’ve had less exposure to the factors that brought on the crisis, they are growing in customers, and they pay more interest than anywhere else that I would consider using.

Would love to hear what others are doing in response to the latest news.

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avatar Yana

I’m surprised you didn’t mention the latest on the FDIC – “Bill Seeks to Let FDIC Borrow up to $500 Billion” from the Wall Street Journal online. The FDIC doesn’t have enough money to be insuring deposit accounts. This is scary. Obama recently said we shouldn’t keep our money in our mattresses. Maybe not, but no bank is very safe. I’m in the process of making some changes myself, based on these factors:

1) A brokerage that also has a bank on the side is risky on two counts
2) The strongest bank is now known to be headed for trouble, but the one that is better today might be in the same position as the first next week
3) Credit unions aren’t insured by the FDIC, but still by the government
4) I’m putting an enormous amount of faith in ING. I’m assuming they’ve had less exposure to the factors that brought on the crisis, they are growing in customers, and they pay more interest than anywhere else that I would consider using.

Would love to hear what others are doing in response to the latest news.
Sorry… forgot to say great post – can’t wait to read your next one!

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