Money Market Deposit Accounts are insured by the FDIC and have the same $250K insurance limit as savings accounts. To the extent that money market accounts may pay a slightly higher interest rate than savings accounts, it's because they typically require a higher initial deposit and a higher minimum balance. Moving funds from a savings account to a money market account because you're worried about deposit insurance makes no sense. Now, if they're talking about Money Market Mutual Funds as opposed to Money Market Deposit Accounts, those are NOT FDIC insured and typically have more restrictions on how quickly and how frequently you can withdraw money, and in exchange pay a slightly higher interest rate still.
I've never understood why people did not use money market funds more often. While the worst stuff that can happen is Not Great (e.g. taking a 3% haircut in the worst failings in the past, with underlying bonds of up to a couple years of duration), the modern ones that use treasury and agency debt with underlying maturities of 90 days or less ought to have a pretty blunt downside, even if they must liquidate or gate redemption.<p>You could also consider a super-short treasury ETF, like BIL.<p>The systemic problem with Money Market Funds in the economy at large is they are too simple a lending device (which is why overheads are so low), as the safest bank-like ones invest in safe, very short-dated, super liquid federal securities, and the whole point of having a bank is to create debts that are riskier and weirder than that (for example, financing an office building).<p><a href="https://clsbluesky.law.columbia.edu/2023/03/20/financial-institution-innovation-needed-in-silicon-valley/" rel="nofollow">https://clsbluesky.law.columbia.edu/2023/03/20/financial-ins...</a> ponders some options to allow banks to do this while mitigating bank runs and having a more legible sharing of risk with the depositor/investor.<p>If (uninsured) risk is supposed to be correlated to return, then it would also suggest banks really ought to be offering higher yields than money markets for uninsured deposits. Like, significantly. This has not been the case, so I've never relied on deposits for anything more than a payment clearing utility.
In some ways, money market funds are safer than banks because they're not playing the borrow short lend long game. The risk of getting wiped out is also lower, though the risk of getting 95 cents on the dollar is higher.
Title is technically accurate, but kind of weird. Investors are pulling money out of some (smaller) banks and transferring them to other banks. Or are pulling money out of savings/checking accounts and adding them to money market accounts with different risk profiles. The title implies the banking sector is at risk, but that's not what's happening - the big banks are getting bigger.
Isn't the fundamental issue here about banks not having raised their the interest rate that's paid to depositors as the Fed has raised those rates? E.g. Bloomberg Feb 23 20324:<p>> "The Federal Reserve has been raising benchmark borrowing rates at the fastest pace in decades, but the interest rate paid out to millions of people with bank accounts is still stuck at almost zero. According to data from Bankrate, the average interest rate on savings accounts is just 0.23%. So what's going on?"<p>It's investment capitalism continuing to transition towards a monopoly model, what else?<p>> "Dougherty said a lack of competition within the financial industry is what allows banks to take more money from their customers without customers getting fed up and moving their money to a competitor or out of the banking system altogether."<p><a href="https://thehill.com/policy/3656474-lawmakers-slam-big-bank-ceos-for-failure-to-increase-interest-rates-on-savings/" rel="nofollow">https://thehill.com/policy/3656474-lawmakers-slam-big-bank-c...</a><p>Solution: have the Fed offer the public personal savings accounts at the listed Fed rate, perhaps with some limited restrictions on withdrawals.
This is a reminder that the economy needs a reliable store of value. A CBDC (i.e. everybody gets an account at the central bank) would make sense for this. Ironically, when introduced it might cause bank runs or other stresses for banks though.
Slightly off-topic question: which information sources do you recommend for someone who wants to have a good conceptual understanding of economics, finance and investing? Here's what I liked so far:<p>People (their blogs or Twitter): Paul Krugman, Cullen Roche, Lyn Alden, Joseph Wang, Aswath Damodaran, Matthew C. Klein.<p>Books: Macroeconomics by Mankiw, Pragmatic Capitalism, Central Banking 101.<p>Podcast, news websites: I don't follow any.