One word is the difference in FDIC backing
In this scary credit scenario it’s important to know whether your investments are FDIC insured or you will feel the full brunt of a banking collapse. Stocks, bonds and mutual funds are left uncovered by the FDIC as are annuities and insurance but there is one more investment that may surprise you. The difference between a money market account and a money market fund will leave one insured while the other is uninsured.
It’s hard to tell by the name but unless you’ve done some reading on the FDIC’s insurance coverage you would never know that a money market account is insured while a money market fund is not. A money market account has some limits to withdrawals, usually 6 transfers per month. Money market funds are made up of shares of a larger investment in short term interest bearing investments.
Though the returns of both investments are about equal, in this credit environment the money market funds carry a larger amount of risk. If a money market fund tanks, the investor is held liable for every cent. In a money market account, the account owner is FDIC insured up to $100,000 in the same way as checking and savings accounts are also insured.
Transferring cash between a money market fund and a money market account is simple and can be done with one trip to the bank. The time spent is certainly worth the trip, if your bank were to fail you’d be stuck with nothing while a money market account is completely backed. It makes zero sense to hold a money market fund when an alternative is available– same rate and substantially less risk.
