Money Market Account vs Money Market Fund: What’s the Difference?

By Paulina Likos. June 18, 2024 · 7 minute read

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Money Market Account vs Money Market Fund: What’s the Difference?

Money market accounts and money market funds may sound like the same thing, but the former is actually a savings account, while the latter is a kind of investment. It’s not a matter of one being better than another; they are simply different financial products, and each can play an important role in a person’s money management.

Here, learn more about the uses and benefits of each.

Key Differences Between a Money Market Account and Money Market Fund

A money market account vs. fund are the same in the following ways:

•   Both options are a great place to keep cash in the short term.

•   Both options are low-risk and offer yields that help boost your cash position.

•   These financial vehicles offer easy access to your funds.

That said, there are some important differences between a money market account and a money market fund:

•   A money market account is a savings account, while a money market fund is an investment vehicle.

•   Money market accounts are insured by the FDIC, while money market funds are not federally protected.

•   You open a money market account with a bank or credit union, but you invest in a money market fund via a brokerage firm.

•   Money market accounts may or may not charge account fees; money market funds probably carry maintenance fees.

Here are these differences in chart form:

Money Market Account

Money Market Fund

A savings account An investment vehicle
Insured by the FDIC Not federally insured
Opened at a bank or credit union Opened with a brokerage firm
May or may not have account fees Probably have maintenance fees

What Is a Money Market Account?

A money market account (or MMA) is a kind of savings account, which is one of the most common types of bank accounts. It allows account holders to earn a higher savings rate compared to a conventional savings account.

Thanks to its higher-than-standard annual percentage yield (APY), it can be a good option to earn interest. Simply put, your money can grow faster than it would at a lower APY account. (Interest earned will be taxable, as with other savings accounts.)

Another benefit is that money market accounts usually have some of the features of a checking account. These may include a debit card and check-writing abilities. It gives you easy access for spending money from your savings account.

This account type, however, typically involves a higher minimum balance compared to a traditional savings account. There may also be a maximum of six withdrawals per month from a money market account, whether by ATM, check, debit card, or electronic transfer.

Recommended: What Is a Good Interest Rate on Savings?

Are Money Market Accounts Safe?

If you open a money market account with a bank that is insured by the Federal Deposit Insurance Corporation (FDIC), you can consider your money to be safe. FDIC-insured banks give account holders peace of mind because even in the rare event of a bank failure, your money is insured up to $250,000 per depositor, per account ownership category, per insured bank. In other words, a money market account is a very safe deposit account.

What Is a Money Market Fund?

Money market funds are a type of mutual fund; they are sometimes referred to as money market mutual funds. Whichever term is used, these funds allow investors to purchase securities that may provide higher returns compared to interest-yielding bank accounts. There are a variety of types of money market funds, but many popular ones invest in debt securities with short-term maturities. This account is typically known as a lower-risk type of investment since it invests in high-quality, short-term debt securities.

Money market mutual funds are typically offered by brokerage firms and can be used as a savings or investing vehicle. The typical profile of a money market fund account holder is someone who wants to stow their cash away for a short period of time as an alternative to investing in the stock market. These funds tend to experience very low volatility compared to the stock market.

Depending on the specific fund, earnings may or may not be taxable.

Are Money Market Funds Safe?

Unlike a money market savings account, which is federally insured, money markets mutual funds are not FDIC-insured, though they are subject to the scrutiny of the Security and Exchange Commission. That’s because your fund could potentially lose value.

While there isn’t an FDIC safety net, money market funds likely invest in high-quality securities, so the risk of loss tends to be very low. The investments in the fund, for example, may be Treasury bills or certificates of deposit. For these reasons, money market funds have a reputation for being relatively safe investments even though you are not protected against losses.

Choosing Between a Money Market Account and Money Market Fund

Here’s important information on when a money market account is the right option and when a money market fund is the better choice. Or you might decide to have both.

When to Consider a Money Market Account

Account holders can consider a money market account if they want to improve their savings rate and get higher rates compared to traditional savings accounts. If you have an existing savings account and you want to put your extra cash to work for higher yield, a money market account could be a suitable option. It can be appropriate for short-term savings, though it may not be the best long-term savings account option.

Keep in mind that money market accounts, unlike some other common types of savings accounts, may have minimum deposit requirements. The higher the yield you’re searching for, typically, the greater the minimum deposit may be. In addition, there may be monthly fees for these accounts.

Money market accounts are also great for account holders who want the flexibility to write checks, withdraw cash, and even use a debit card for purchases. These features, which typically come with checking accounts, are some of the upsides of a money market account.

When to Consider a Money Market Fund

You may want to consider opening a money market mutual fund vs. a money market account (or any other vehicle) if you are seeking a low-risk investment with what are probably higher yields compared with savings accounts. More specifically, they may be a good option if you are, say, an investor looking to build up cash holdings through a high-quality investment vehicle that pays dividends reflecting short-term interest rates.

That said, investors must consider the fees attached to money market funds. Many investment vehicles charge a management fee or an expense ratio. This can range considerably, but the average annual rate is currently around 0.13%, so if you had $20,000 invested, you’d pay $26. This expense can eat away at your investment returns.

The Takeaway

Money market accounts and money market funds can be great tools for safely building wealth. However, they are different kinds of products: A money market account is a savings account that earns interest while providing checking-account style access (say, via a debit card). Money market funds are an investment vehicle that puts your money in historically low-risk debt securities. Depending on your money goals and style, either or both can be a positive part of your financial portfolio.

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FAQ

Are money market funds safe?

While not immune to losses, money market funds are relatively safe investments since they invest in high-quality debt securities.

Can you lose money in a money market fund?

Since money market funds are an investment, they are not insured by the FDIC. There is a possibility of loss, but money market funds are known for investing in very low-risk debt securities.

What are money market funds?

Also known as money market mutual funds, money market funds are a low-risk investment account. They allow investors to purchase securities that typically provide higher returns than interest-yielding accounts.

Is a money market account considered cash in the bank, like a savings account?

Yes. A money market account is a savings account with some checking account features. Money can be withdrawn at will, but there may be a limit regarding how many of these transactions you can complete in a given month. Check with your financial institution for specific account details.



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