Can you lose your money if you place it in a money market account?
A friend you respect and see every day asks to borrow $5, and you give it to them. Why did you do that? You know your friend well, and you are probably pretty certain that you’ll get your money back eventually.
This analogy is a good one to ponder if you are wondering if you can lose your money if you place it in a money market account. Financial advisors can help you learn what the risks are of losing the money you put in a money market account.
What is a money market account and can you lose the money you put in one?
Money market accounts are a type of bank account that act as both a savings and checking account. They are also called money market deposit accounts or money market savings accounts. This type of account tends to have several notable features, including:
- A federally mandated six-transaction limit per month (more transactions will incur a fee).
- The ability of the account holder to make interest on their money while still having the ability to transfer money from the account, write checks or do debit card transactions.
- An interest rate that can be up to twice as high as a traditional savings account.
- A minimum deposit amount to open an account.
- A minimum monthly account balance.
It is always possible that you can lose the money you place into a money market account. After all, every financial situation has some level of risk. However, the level of risk in using a money market account is about the same as that of not getting that $5 loan back from your friend.
Why are you unlikely to lose your money if it is in a money market account?
To reiterate, you can lose the money in a money market account, but the odds of that happening are low. It would be comparable to, in terms of our analogy, of your friend being hit by a bus right after they spent your $5. Possible, but not likely. Here are some reasons why the risk is so low for money market accounts:
- They are insured — Money market accounts that you hold with an insured bank are, well, insured. The Federal Deposit Insurance Corporation (FDIC) insures such accounts up to $250,000.
- Banks use these accounts to fund stable, short-term investments — Banks do use money from money market accounts to make investments. However, they typically only use the money from these accounts to make investments in stable, short-term securities. Some examples of these investments include certificates of deposit (CDs) and government securities.
For these and other reasons, money market accounts are generally a low-risk investment. You can always talk to a financial advisor to learn if money market accounts are a good option for your goals.
Talk to a ProVise CFP® professional about your financial planning
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about using money market accounts and other financial tools in your plan? Contact ProVise today to schedule a complimentary consultation.