A common question in the personal finance industry tends to be: “Is a money market fund the same as a money market account?” While some might think the two types of accounts are very similar, that is not actually the case.
At their core, money market accounts are a type of deposit account designed to help consumers save their money while earning a nominal yield on their savings. A money market fund is a type of investment that you will need to access through a brokerage or issuer. Read on to learn more about money market funds vs. money market accounts.
What Is a Money Market Account?
Money market accounts are a type of savings deposit account available at banks, credit unions and other financial institutions. As deposit accounts, they come with FDIC or NCUA insurance up to $250,000. They also tend to offer higher yields than traditional savings accounts.
In many cases, money market accounts come with checks and debit cards, making it convenient for you to withdraw your money. However, keep a close eye on withdrawal limits. Although some banks allow unlimited withdrawals, others charge a fee after six transactions per month.
- Earn a higher yield than traditional savings accounts.
- Write checks and use a debit card.
- Easily access your funds.
- FDIC or NCUA insurance up to $250,000.
- You may only be able to make up to six withdrawals per month without a fee.
- Minimum balance requirements often apply.
- The bank may charge a fee if you don’t meet the minimum balance requirements.
What Is a Money Market Fund?
A money market fund is a type of investment account. These funds typically invest the brunt of their assets in debt securities with short maturities, meaning there’s minimal risk. Due to this, these are some of the least volatile mutual funds you can own.
As an investment, money market funds are not protected by FDIC, NCUA or any other federal agency. You also won’t have access to checks or a debit card. Instead, you’ll need to sell your investment through a brokerage or issuer if you need to access your money.
- Typically pay higher yields than money market accounts.
- There is no limit to the number of times you can access your money.
- Require low initial investments.
- Relatively low risk.
- No FDIC or NCUA insurance.
- An investment that comes with the risk of loss.
- Investment gains may not keep up with inflation.
Money Market Funds vs. Money Market Accounts: Key Differences
The differences between these two accounts are related to accessibility, earnings, risk and insurance. Check out the chart below to learn more about the differences between money market funds vs. money market accounts.
|Feature||Money Market Account||Money Market Fund|
|Insurance coverage||FDIC or NCUA — up to $250,000 per depositor||None|
|Access to account balances||Varies; limited to six withdrawals per statement cycle at many banks||Unlimited|
|Interest accrual||Yes||Yes; higher than that of money market accounts|
Should You Open a Money Market Account or Purchase a Money Market Fund?
The answer to this question largely depends on how you intend to use your savings. Here are a couple of things to consider:
- Money market accounts are best if: You plan on keeping your savings for the long run. You’re not concerned about limits on the number of times you can withdraw money per billing cycle and you want a safe place to store your money.
- Money market funds are best if: You have a short-term time horizon with the money you’re saving. You never know when you’ll need to access your funds and you may need to do so more than six times per month.
In many cases, it’s a good idea to have both of these types of accounts. For example, your long-term savings will fit well in a money market account while you achieve your short-term goals with money market funds.
It’s important to understand the differences between money market accounts and money market funds before you decide which is best for you. You may even need both. Consider the differences mentioned above and how they pertain to your unique financial position to decide which direction to take.
FAQHere are the answers to some of the most frequently asked questions regarding money market accounts and money market funds.
- What is the downside of a money market account?
- The biggest downside of a money market account is accessibility. For some time, the Federal Reserve only allowed six withdrawals per month. They have lifted this rule but some banks have not changed their policy. If you want the option to access your money multiple times a month, make sure you understand your bank's policy before opening an account.
- What are the different types of money market funds?
- The three types of money market funds include:
- Government: Government money market funds typically include investments in Treasury and other government assets, such as government securities and repurchase agreements.
- Prime: These funds may invest in government and non-government assets.
- Municipal: These types of funds invest at least 80% of their assets in national or state municipalities.
- The three types of money market funds include:
- Is it better to put money in savings or a money market account?
- If you can meet the higher minimum deposit and balance requirements generally imposed on money market accounts, they are the better option. That's because money market accounts generally pay higher annual yields than traditional savings accounts. You may want to also look into a high-yield savings account for even larger earnings.
Lydia Kibet contributed to the reporting for this article.
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- Consumer Financial Protection Bureau. 2023. "What is a money market account?"
- Federal Reserve. 2020. "Federal Reserve Board announces interim final rule to delete the six-per-month limit on convenient transfers from the "savings deposit" definition in Regulation D."
- Fidelity. "What are money market funds?"