There are two kinds of money market accounts. You usually put money in a Money Market Deposit Account through a chartered financial institution, such as Bank of America, Wells Fargo or another national bank. You typically invest in a Money Market Mutual Fund through your stock broker. Money Market Deposit Accounts and Money Market Mutual Funds have different kinds of protections and risks. You may want to take these differences into account when deciding how much money to put in each.
No Limits on Investment
There are no limits on the amount of money you can accrue in either a Money Market Deposit Account or a Money Market Mutual Fund. You can make unlimited withdrawals from a Money Market Mutual Fund account, often with a debit card or by writing a check; there is no minimum amount of cash you can have in the account, although some brokerages charge a fee if the overall account value -- cash and equities combined -- falls below a minimum. Banks offering Money Market Deposit Accounts sometimes charge a fee if the account balance falls below a minimum, or if the number of debit transactions in a month exceeds a maximum.
Money Market Deposit Accounts
Your Money Market Deposit Account is insured by the Federal Deposit Insurance Corporation. The insurance covers both a missing account -- whether through fraud or accounting mismanagement -- and a loss of value in an existing account. Your money is insured up to the limits of the FDIC insurance on the account, which is $250,000 for a single person and $250,000 for each party in joint accounts. A couple can have two individual accounts, each insured for $250,000.
Money Market Mutual Funds
Your Money Market Mutual Fund is insured by the Securities Investor Protection Corporation against the account going missing or the brokerage going out of business. It is not insured against a loss of value or even the brokerage's inability to deliver the cash in your account because the brokerage is in financial trouble, yet hasn't yet failed completely. The SIPC is a private corporation funded by the securities industry and has no government backing. Another difference between insurance coverage in a Money Market Deposit Account and a Money Market Mutual Fund is that the latter doesn't provide coverage in excess of the coverage limits -- $500,000 for equities and $100,000 for cash -- if you have multiple accounts at the same brokerage.
If you have a mutual fund in a brokerage in your bank, it doesn't matter that the bank is the corporate owner, your mutual fund is a Money Market Mutual Fund, and enjoys only SIPC insurance protections. Because your SIPC protections are less than absolute, it's important to keep your account with a brokerage you know to be financially secure. It's prudent not to keep more money in any one account, whether Money Market Deposit Account or Money Market Mutual Fund, than the account's insurance. If the account value at your brokerage exceeds SIPC insurance limits, consider opening another account at a different brokerage and dividing the assets.
I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.