[Carol]

I know a lot of you guys keep your cash in a money market fund with fidelity, etc. Could someone please explain to me the difference in security between a money market fund versus an FDIC insured account?

From what I understand, mm funds are NOT insured?

[Frank]

They are covered by SIPC insurance, but the real difference is that money market funds are segregated entities, so you actually own something tangible – an interest in the fund.

Even if the brokerage has a financial problem, that does not affect the fund.

By contrast, YOU DO NOT OWN JACK SQUAT WHEN YOU PUT MONEY IN A BANK. YOU ARE LOANING THAT MONEY TO THE BANK AND IT IMMEDIATELY BECOMES THE BANK’S MONEY AND IS NO LONGER YOURS.

What you have from the bank IS JUST AN IOU.

And that is the whole reason that you need FDIC Insurance on bank deposits — because they just IOUs, not legal interests in anything.

Because without the insurance, bank deposits are actually LESS SAFE than buying an interest in a segregated fund like a money market.

It’s like loaning money to your brother-in-law.

[Mark]

use ur brokerages MMF for ease. fidelty SPAXX or SPRXX. fidelity isnt going anywhere

[Dara]

Vanguard offers a cash account, insured up to 400,000$ I think. Last I saw it was 4.2% yield. You can write checks, bill pay and have a debit card with it.

A regular money market is not insured

[Rick]

Quick slightly off topic but for all the government securities money fund people out there (I am one).

It is not hard but it is some effort – most of these money market fund, like fidelity spaxx, have nearly all holdings in us treasuries like bills for the money market funds.

These are usually exempt from state income taxes.

You can find the fund dividend source from fidelity (or the brokerage of record) and check with your state income tax rules and then (usually) check a box in your 1099div tax software section and…..viola the amount will be excluded on your state income taxes return.

This could save some people a few hundred dollars.

And it’s not always intuitive for anyone coming from the world of bank savings accounts to the world of brokerage money market funds.

**research yourself to decide if applicable.

[Tushar]

Barclay tiered HYSA offers 4.35% so not sure why I would want to put in MM offering 4%.

For me MM is default Fidelity position so I can make few cents or dollars while I move money from Checking to Brokerage via MM.

[Danny]

They are not insured. Money market funds invest in specific types of short-term debt. Sometimes treasuries very short duration asset-backed securities issued by Auto lenders, solar lenders and other esoteric assets.

There are very specific requirements and that debt is usually over collateralized. However, there is risk of default.

I believe it is only happened once.

[Kris]

What is your concern? That a financial institution like Schwab or Fidelity is going to go under?

[Sean]

Money market funds are considered investments so they aren’t insured by the fdic, which only insures bank accounts.

Credit union accounts also aren’t insured by the fdic.

There is a small risk of loss of principal with money market funds.

[Tom]

If you believe in the future of Bitcoin, use River for your money market.

They pay (I think) 3.8% interest in Bitcoin and if you set up recurring deposits, there are no Bitcoin fees.

[Matt]

Fidelity does have an FDIC option you can look into. Think it pays currently about half the interest, something like 2%.

I personally use the 4% MM account.

[Author]

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