Question

Which of the following statements is NOT true about money market accounts offered directly by brokerage firms to their customers?

A. The money in these accounts is as safe as or safer than money in a bank.
B. Interest rates may change frequently to reflect what the fund earns on its investments.
C. They tend to pay rates that are higher than those paid by banks for similar accounts.
D. Many have large minimum balances.

Answer 1

The incorrect statement about money market accounts at brokerage firms is that they are as safe as or safer than bank accounts, due to differences in FDIC insurance coverage.

Step-by-step explanation:

The statement that is NOT true about money market accounts offered directly by brokerage firms to their customers is A: "The money in these accounts is as safe as or safer than money in a bank." Money held in bank accounts benefits from the security provided by the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000 if a bank goes bankrupt. Brokerage money market accounts do not have the same level of FDIC protection but are often covered by SIPC insurance, which has different coverage rules and limits.

Interest rates on money market accounts may indeed change frequently to reflect the earnings on their underlying investments, making statement B true. Regarding statement C, money market accounts can offer higher interest rates compared to traditional bank accounts, which tend to be true due to their investment in instruments like short-term government bonds. Lastly, it is common for money market accounts to require larger minimum balances, which makes statement D accurate.