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.

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