How Is a Money Market Account Different from a Money Market Fund?

A money market account is a liquid, federally insured bank account that pays interest on your deposit. In contrast, a money market fund is an investment that can include U.S. treasuries or debt securities considered relatively safe.

What Is a Money Market Account?

A money market account is a federally insured, liquid bank account that pays interest on your deposit.

How Does a Money Market Account Work?

A money market account operates similarly to a savings account and a checking account because it includes a debit card and check-writing abilities. Although you deposit money and can access the funds, there are transaction limits. Exceeding these limits results in fees.

Is a Money Market Account Safe?

Provided that the bank or credit union where you deposit your money is part of the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA) network, you have insurance coverage of up to $250,000 if the financial institution fails.

What Is a Money Market Fund?

A money market fund varies by the type of investment targeted. Some funds invest mainly in U.S. Treasury securities, while others invest primarily in corporate and bank debt securities.

How Does a Money Market Fund Work?

Although a money market fund is not federally insured, it is a relatively safe liquid investment. The returns are derived from the underlying investments, minus the management expenses. You initiate a transfer from your brokerage account, and it could take one or more business days for the funds to post to your account.

Because money market funds draw from the same group of investments, they lack the disparity of money market account returns. The funds usually trail potential earnings in a top-yielding money market account. Along with taxes on your earnings, you generally pay maintenance fees if your account drops below a certain limit.

Tax-exempt money market mutual funds invest at least 80 percent of their portfolios in municipal securities. In some cases, you might be able to buy shares in a fund invested in securities in the state where you reside.

Are Money Market Funds Safe?

Like other investments, money market funds carry some risk. Although the funds aim to be $1 per share, a fund can return investors 95 cents or 99 cents for each dollar invested.  

Despite the remote possibility of any loss, money market funds represent the most conservative investments available. With a fund, you can feel confident you won’t have sudden volatility and lose a chunk of money.

Differences Between a Money Market Account and a Money Market Fund

A money market account and a money market fund differ in these ways:

Money Market Account

• Is opened at a bank or credit union.

• Comes with federal deposit insurance protection.

• Earns a stated interest rate.

• Often comes with transaction limits.

• Is best for emergency fund holdings and short-term savings goals.

Money Market Fund

• Is opened at a brokerage.

• Is safe but not insured against loss.

• Is invested in low-risk, short-term securities that fluctuate in value.

• Has no limit on withdrawals and transfers.

• Is best for a brokerage account with the ability to make quick investment decisions.

• Can provide higher rates of interest than a money market account.

Which Is Better: A Money Market Account or a Money Market Mutual Fund?

A money market account is an attractive option for your emergency fund because it keeps your money safe and accessible. For instance, if you have an unexpected $1,000 car repair bill, you can pay it from the money market account.

Because of its liquidity and earning potential, a money market account might be a good option for saving for short-term goals, such as a home down payment. However, if you have money to invest, a money market mutual fund could be a better choice.  

*This information is for educational purposes only.

Do you have a money market account and/or a money market fund? Let me know in the comments!