You’ve heard of money market accounts and money market funds…but what’s the difference?

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Two products with similar names but different purposes.


Key points

  • A money market account is an FDIC or NCUA insured deposit account.
  • A money market mutual fund is an investment that offers both reward and risk.
  • There are no fees associated with money market accounts. The same cannot be said for MMMFs.

Whether you are reading a book or talking with a broker, understanding financial terms is a lot like learning a new language. At some point, everything starts to look the same. Here we cover two different financial products. Although they have similar names, they work very differently.

What is a Money Market Account (MMA)?

The banking product that can be most accurately compared to an MMA is a high yield savings account. Both pay interest on your deposit. Neither is at risk because it’s either NCUA- or FDIC insured up to $250,000 per account holder, per account.

When you deposit money in an MMA, the more you deposit, the higher the interest rate you earn. There may also be a minimum balance that must be met.

Although money deposited in an MMA earns relatively little interest, it is safe and you have access to the funds whenever you need them.

MMAs are good for storing short-term savings. If you want to keep your cash but also earn some interest, consider putting your money in a money market account.

What is a Money Market Mutual Fund (MMMF)?

Think of an MMMF as your most stable friend, one who looks both ways before crossing the street and almost always makes the right decisions. They may not be the most colorful or dramatic of your friends, but they are stable.

As an investment, an MMMF is very much like this friend. Its sole purpose is to be reliable and provide safe returns. There are all types of MMMFs, and each MMMF has its own types of investments. What all of these accounts have in common is that they try to avoid huge risks and provide you with a stable asset.

Compared to other investments, MMMFs are inexpensive. However, due to market fluctuations, an MMMF is not the place where you want to keep a emergency fund. After all, once you’ve gone to the trouble of setting up an emergency savings account, you don’t want to take the risk.

On the contrary, an MMMF is a suitable addition to an established portfolio. If other investments in your portfolio are risky, an MMMF can provide a good balance.

Major differences

Here are some simple tips to help you remember the difference between a money market account and a money market mutual fund:

  • While an MMA is a deposit, an MMMF is an investment.
  • Because it is considered a bank deposit, MMAs are insured up to $250,000 per depositor per account.
  • As an investment, MMMFs do not benefit from any protection or insurance. Your investment may perform well and you may lose a large portion of your capital.
  • While MMAs generally have no fees, investing in an MMMF does incur fees.

None of these banking products is better than the other. Instead, they are complementary, each designed to improve your financial security.

These savings accounts are FDIC insured and could earn you up to 18 times your bank

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