Money Market Account vs. Money Market Fund: What’s the Difference? (2024)

FAQs

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

An MMA is an insured savings account with a bank or credit union. While your money is accessible, there may be some restrictions on the number of transactions allowed on a monthly basis. Money market funds are mutual funds and not insured.

Money market funds typically earn interest slightly higher than a money market or savings account. Access. Unlike a money market account, investors don't have access to funds through debit cards or check-writing privileges.

While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.

Money market funds generally pay a higher yield than traditional bank savings accounts. And it's easy to withdraw money from a money market fund without the fees or penalties you might pay with a CD.

There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.

Like any financial product, Money Market Accounts come with trade-offs. While they offer advantages such as security and higher interest rates compared to regular saving accounts, the rates may be lower than some other options. Additionally, exceeding withdrawal limits could incur fees.

"The risk associated with money funds is very low, given that the SEC mandates that only securities with high credit quality and shorter maturities are eligible holdings," Smith says. "For investors, it's like you're getting paid to be patient while the Federal Reserve works toward taming inflation."

Vanguard Treasury Money Market Fund

This fund only invests in US Treasuries and repurchase agreements insured by the federal government, making it among the safest in a category of relatively safe investments.

Money Market Funds

Ultra-conservative investors and unsophisticated investors often stash their cash in money market funds. While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.

Has anyone ever lost money in a money market fund? ›

It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.

Money market funds are divided into two categories: taxable and tax-free. If you're buying a taxable fund, any returns from the fund are generally subject to regular state and federal taxes.

They may come with the ability to pay bills, write checks and make debit card purchases. Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.

A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year. Certificates of deposit (CDs).

(2) Maintaining an emergency reserve. Having money outside of retirement accounts can act as a personal safety net to get through financial hurdles, such as a period of unemployment or an unbudgeted large expense. We recommend an amount that could cover three to six months of expenses.

What is the 7-day yield? The 7-Day Yield represents the annualized fund yield based on the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.

return. A money market account gives you more access to your money in the form of direct checking and ATM withdrawals, but it will generally provide a lower interest rate. A high-yield savings account pays a much higher interest rate, but you have transfer limits and few, if any, accounts let you directly spend money.

It might be worth investing in a money market account when you want a safe place to store your money with a higher interest rate than a checking account, while still having some liquidity features such as check writing. It's ideal for emergency funds or short-term savings goals.

Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.