Yes, but the risk depends on what you own inside the account

A money market account itself—the deposit account at your bank or credit union—does not lose money. Your balance stays what you put in, plus interest earned. But if your money market account holds money market funds (mutual funds that invest in short-term debt), those can drop in value. The account is safe; what you buy inside it may not be.

The confusion happens because "money market account" and "money market fund" sound like the same thing. They are not. A money market account is a savings product. A money market fund is an investment product. Many banks sell both, and some people hold both at once without realizing they are different animals.

If you have a money market account at a bank and you are simply depositing cash, you will not lose money—but you might earn very little. If you have a money market fund through a brokerage or mutual fund company, losses are possible, though rare in normal conditions.

Key Takeaways

  • Bank money market accounts are insured by the FDIC up to $250,000 per depositor, so your principal does not fall.
  • Money market funds are not insured and can lose value if the bonds or short-term debt they hold decline in price.
  • Money market fund losses are uncommon but happened during the 2008 financial crisis and briefly in 2020 when investors rushed to cash.
  • Interest rates matter: when rates drop, money market funds holding older bonds may lose value as those bonds become less attractive.
  • Check your account statement or prospectus to know whether you hold a bank account or a fund—the name alone does not tell you.

How a bank money market account protects your money

A money market account at a bank or credit union is a deposit account, meaning your money sits in the institution's vault (or its reserves). The FDIC insures these accounts up to $250,000 per depositor, per bank. You cannot lose your principal. The bank pays you interest—usually low—in exchange for holding your cash.

The bank uses your deposit to make loans and buy securities. If the bank fails, the FDIC steps in and returns your money up to the limit. Your balance does not fluctuate based on market conditions. You see the same amount every time you log in, plus whatever interest accrued that month.

The only way you lose money in a bank money market account is if you withdraw funds and pay a penalty for breaking a term, or if you overdraft the account. The account itself does not shrink.

How a money market fund can lose value

A money market fund is a mutual fund that invests your money in short-term debt: Treasury bills, commercial paper, certificates of deposit, and bonds maturing in less than one year. You own shares of the fund, not the debt directly. The fund's share price moves based on what those securities are worth on any given day.

When interest rates rise, older bonds in the fund become less valuable because new bonds now pay more. When interest rates fall, older bonds become more valuable. But the fund's price can also drop if the debt it holds defaults—if a company or government cannot pay back what it borrowed.

Money market funds aim to keep their share price stable at $1.00 per share, but they do not always succeed. During the 2008 financial crisis, one major money market fund "broke the buck"—its share price fell below $1.00—because it held debt from Lehman Brothers, which collapsed. Investors panicked and withdrew money, forcing other funds to sell holdings at a loss to meet redemptions.

When money market funds lost money in recent history

Money market fund losses are rare but not impossible. The most famous case was September 2008, when the Reserve Primary Fund held $785 million in Lehman Brothers commercial paper. When Lehman filed for bankruptcy, that paper became worthless. The fund's share price fell to $0.97, and panicked investors rushed to withdraw. The U.S. Treasury had to step in with a temporary may provide to prevent a wider collapse.

A smaller shock happened in March 2020, when the COVID-19 pandemic triggered a sudden flight to cash. Investors withdrew so much money from money market funds so quickly that some funds could not meet redemptions without selling bonds at steep losses. The Federal Reserve again had to intervene, lending money to funds so they could pay withdrawals without fire-selling securities.

These events are not common. Most money market funds hold very safe debt and rarely lose money. But they can, and the risk is real during financial stress.

The difference between a stable value and a floating share price

Some money market funds are stable value funds, offered through employer retirement plans like 401(k)s. These funds may provide that your share price will not fall below $1.00. The fund manager or the plan sponsor absorbs any losses. You get the safety of a bank account with slightly higher returns. But stable value funds are not available to individual investors outside a retirement plan.

Regular money market funds have a floating share price. The price changes daily based on the value of the securities the fund holds. Most days the change is tiny—a fraction of a cent. But in a crisis, it can be larger. You see the price when you buy or sell shares, and that is the price you get.

If you own a money market fund and you check your account during a market panic, you might see your share price drop. That is real. You have lost money on paper. Whether you realize that loss depends on whether you sell or hold until the price recovers.

Interest rate changes and money market fund prices

Money market funds are sensitive to interest rate moves because they hold short-term bonds. When the Federal Reserve raises rates, new bonds pay more interest. The older bonds already in the fund become less attractive, so their price falls. A fund holding bonds that pay 2% looks worse when new bonds pay 4%.

This is not a default or a crisis—it is how bond prices work. But it means your fund's share price can drop when rates rise, even if every bond in the fund pays on time. The decline is usually small because the bonds mature so soon, but it is real.

Conversely, when rates fall, older bonds become more valuable, and the fund's share price rises. If you bought shares when rates were high and rates then fall, you gain. If you bought when rates were low and rates then rise, you lose.

How to know whether you own a bank account or a fund

Check your account statement or the document you received when you opened the account. Look for these clues:

  • If it says "FDIC insured" or "insured up to $250,000," you have a bank deposit account. You cannot lose money.
  • If it says "mutual fund," "fund prospectus," or "share price," you own a fund. Your balance can change.
  • If it says "stable value," you have a may provide fund inside a retirement plan. Your price is locked at $1.00.
  • If your statement shows a "share price" or "net asset value" (NAV) that changes daily, you own a fund.
  • If you can see the fund's holdings listed (Treasury bills, commercial paper, corporate bonds), it is a fund, not a bank account.

Call your bank or brokerage if you are unsure. Ask directly: "Is this a deposit account or a mutual fund?" They will tell you in seconds.

What to do if you want safety without losing returns

If you want the safety of a bank money market account but are frustrated by low interest rates, consider a high-yield savings account instead. These are also FDIC insured, and they often pay more interest than money market accounts—sometimes 4% or higher, depending on the bank and current rates. Your money is just as safe, and you earn more.

If you own a money market fund and you are uncomfortable with the risk, you can move the money to a bank money market account or a high-yield savings account. You will give up a tiny bit of yield, but you will eliminate the risk of a falling share price.

If you want to stay in a money market fund, check the fund's prospectus to see what it holds. Funds that hold only Treasury bills and FDIC-insured CDs are safer than funds that hold corporate commercial paper or bonds. The safer funds usually pay less interest, but they have less risk of loss.

Frequently Asked Questions

Can the bank fail and take my money market account with it?

No. If your bank fails, the FDIC insures your money market account up to $250,000. The FDIC will transfer your balance to another bank or send you a check. You do not lose money. This has happened thousands of times since the FDIC was created in 1933.

What happens to my money market fund if the stock market crashes?

Money market funds do not hold stocks, so a stock market crash does not directly hurt them. But a crash can trigger a financial crisis that affects the bonds the fund holds. During the 2008 crisis, stock prices fell and bond defaults rose, which hurt money market funds. In normal downturns, money market funds are largely unaffected.

Is my money market fund safe if it is inside a brokerage account?

The fund itself is not insured by the FDIC because it is an investment, not a deposit. But if the brokerage fails, the Securities Investor Protection Corporation (SIPC) protects your account up to $500,000. SIPC will return your shares or the cash value. You own the fund; the brokerage does not own it, so it is protected separately from the brokerage's own assets.

Should I move my money market fund to a bank account?

That depends on your goals. If you need safety and do not care about earning the highest rate, move it. If you can tolerate small price swings and want slightly higher returns, a money market fund is fine. Check the fund's prospectus and your own comfort level with risk before deciding.

Can a money market fund go to zero?

Theoretically yes, but it is extremely unlikely. A fund would have to hold debt that all defaults at once, which almost never happens because money market funds spread their holdings across many issuers and types of debt. Even during the 2008 crisis, most money market funds survived intact. Only a handful broke the buck, and none went to zero.