Can money market accounts lose money?
Quick Answer
You cannot lose the balance of a money market account, although penalty fees may be charged for not meeting balance and withdrawal requirements.
Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.
Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
First and foremost, money market accounts are typically safe because they're insured by the federal government. If you open a money market account at a federally insured bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your cash per bank, per depositor.
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
Banks often require a minimum deposit to open the account, then a minimum balance to keep in the account. It's usually much higher than regular savings accounts. This often means $5,000, but can be up to $10,000 at some banks. As stated above, you need to pay a fee if your balance dips below the minimum requirement.
Because they invest in fixed income securities, money market funds and ultra-short duration funds are subject to three main risks: interest rate risk, liquidity risk and credit risk.
Money market funds can protect your assets during a recession, but only as a temporary fix and not for long-term growth. In times of economic uncertainty, money market funds offer liquidity for cash reserves that can help you build your portfolio.
CDs offer benefits that be better than a money market account when you have a lump sum of money you want to save for a longer-term goal. “A CD makes sense when you have a defined timeline,” says Hindman.
Has anyone ever lost money in a money market fund?
There have been only two known incidents in which money market funds were unable to pay 100 cents on each dollar invested in them — they “broke the buck,” in Wall Street jargon — and, despite headaches and long payment delays, no significant losses occurred in those cases. But there have been many near misses.
Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
There are not any banks offering 7% interest on a savings account right now. However, two financial institutions are paying at least 7% APY on checking accounts: Landmark Credit Union Premium Checking Account, and OnPath Rewards High-Yield Checking.
How do Money Market Funds Fail? There are many ways these funds fail: “breaking the buck,” forced liquidation, parent company bailout, frozen investments (illiquid), segregating bad assets, and failure to comply with investment policies are some of the main issues this paper will explore.
Absent unique circumstances like arson and fraud, it's highly unusual to lose money held at a bank. Less than 7% of bank failures since the start of 2007 resulted in losses for uninsured depositors, federal data show.
| Fund | Expense Ratio | 7-day SEC yield |
|---|---|---|
| North Capital Treasury Money Market Fund (NCGXX) | 0.00% | 5.4% |
| Fidelity Tax-Exempt Money Market Fund (FMOXX) | 0.42% | 4.0% |
| Invesco Ultra Short Duration ETF (GSY) | 0.22% | 5.5%* |
| BlackRock Ultra Short-Term Bond ETF (ICSH) | 0.08% | 5.4%* |
Rather than more favorable capital gains rates, you'll owe regular income taxes on money market fund earnings, with a top bracket of 37%. By comparison, the top long-term capital gains rate is 20%.
Runs on money market funds have been rare. In 2008, a large money market fund that was over-exposed to commercial paper issued by failed bank Lehman Brothers suffered a run on assets, forcing its net asset value to fall below $1, a term known as "breaking the buck."
- Ally Bank®: Earn up to 4.40% APY.
- CFG Bank: Earn up to 5.25% APY.
- EverBank® (formerly TIAA Bank®): Earn up to 4.75% APY.
- First Internet Bank of Indiana: Earn up to 5.46% APY.
- Prime Alliance Bank: Earn up to 4.50% APY.
- Quontic Bank: Earn up to 5.00% APY.
Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs). CDs are offered by financial institutions for set periods of time.
Should I move my money into a money market account?
If you want to maximize how much interest you earn on your savings, a money market account can be a good option compared to other savings accounts because it usually earns a higher rate of interest. Plus, if you need quick access to your money, you can do so in a variety of ways.
If the saver is able to meet the minimum balance, doesn't anticipate needing the funds anytime soon, and is interested in a higher interest rate, a money market account is the better choice.
Can I lose money when I invest in money market funds? Yes. Although money market funds seek to maintain a stable $1 share price, capital preservation is not guaranteed.
A15: If a money market mutual fund held securities on which the U.S. Treasury defaulted on the payment of interest or principal, then the fund would need to sell those defaulted securities, unless the fund's board of trustees determines that disposing of the securities would not be in the best interests of the fund.
Investors typically flock to fixed-income investments (such as bonds) or dividend-yielding investments (such as dividend stocks) during recessions because they offer routine cash payments.
