Answer: pretty safe. Money market accounts are insured by the Federal Deposit Insurance Corp. (FDIC). Just don't confuse these accounts, offered by banks, with money market funds at brokerages – which are not FDIC-insured.
Money Market Accounts
Money market accounts can be opened easily at participating banks. These accounts offer higher interest rates than standard checking or savings accounts. However, deposit minimums tend to be higher, and these accounts offer limited check-writing ability due to the Federal Reserve's Regulation D, which limits withdrawals to six per month.
Consumers need not worry about the safety of money market accounts because they're insured by the FDIC up to the maximum amount allowed by law. In addition, banks invest the capital from customer accounts in stable low-risk vehicles that include certificates of deposit (CDs) and government securities.
Money Market Funds
Consumers can buy into money market funds at participating banks, mutual fund companies or brokerage houses. A money market fund allows the consumer to earn interest on cash reserves within a portfolio – the stray money left over from transactions, or that's just holding until it can be invested in other instruments. The money market fund invests the capital in relatively safe vehicles that include Treasury bills and CDs. Higher-risk money market funds may invest in commercial paper, which is corporate debt, or foreign currency CDs. These holdings can lose value in volatile market conditions or if interest rates drop, but they can produce more income too.
Because they are considered investments, not deposits, money market funds are not insured against loss by the FDIC. However, they are covered by the U.S. Treasury if the participating brokerage firm fails.