Although money market accounts have a similar name to money market funds, they are not the same. To understand money market accounts and money market funds, it helps to know the difference between the two, and to understand what the “Money Market” is specifically. Money Market: Just as a market is a place where goods are bought and sold, the money market describes the market where monies, certificate of deposits, bonds, etc., are the goods banks and financial institutions trade, borrow and lend.
Money Market Account
Money Market Accounts (MMAs) have competitive returns while taking less risk. Money market accounts will be easier to find at standard banks, therefore taking less time and effort. Money market accounts offered by banks are typically FDIC insured. Money market accounts have limited transaction privileges. These accounts are limited to no more than three check-based transactions and six withdrawals or transfers per month. Money market accounts also have a minimum balance requirement.
Money Market fund
A money market fund is a kind of mutual fund. Money market funds typically have to be opened with a brokerage firm or mutual fund company. These funds are collection of short-term debt investments held by a mutual fund. These investments are debt securities that generally mature in 13 months or less. Money market funds commonly have higher returns than money market accounts. Money market funds typically are not FDIC insured.
Which to use will depend strongly on what you need. Depending on your requirements, money market accounts have their place, as do money market funds. If you don’t need the options available from funds, you could use a money market account. The main factors are risk and choices. For some investors, safety is more important than high returns. For others higher returns are their focus.