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Money market accounts vs. money market funds
High minimums and account accessibility help separate this savings account and mutual fund.
Money Market Guides
Wondering what the difference is between a money market account vs. a money market fund? Both offer the opportunity to earn, but they’re actually quite different. Explore our guide on money market accounts vs. money market funds to see which is right for you.
What’s the difference between a money market account vs. money market fund?
Money market accounts are savings accounts with high minimums while money market funds are mutual fund investments with no guarantee of return. Here are the key differences:
| Money market account | Money market fund | |
|---|---|---|
| About | High-yield savings account with limited transactions and steep minimums | Highly accessible mutual fund with fluctuating returns |
| Checking-writing | Limited | Unlimited |
| Returns | Steady | Fluctuate |
| FDIC-insured | Yes | No |
| Minimum deposit | Up to $25,000 | Up to $5,000 |
| Six-transaction limit | Yes | No |
Pros and cons of money market accounts vs. money market funds
Money market accounts and money market funds may sound similar, but they have distinct differences:
Money market accounts
Pros
- High rates. Money market accounts typically offer higher rates than regular savings accounts.
- FDIC-insured. Funds are insured by the FDIC for up to $250,000.
- Check-writing privileges. Some money market accounts come with limited check-writing privileges.
Cons
- Limited transactions. Since money market accounts are a type of savings account, transactions are limited to six withdrawals monthly, with fees or penalties for going over. However, some banks have temporarily waived this policy due to coronavirus, so check with your provider.
- High minimums. You’ll need to deposit a minimum of $2,500 to $10,000 to tap into the higher rates money market accounts offer.
Money market funds
Pros
- Low minimums. Minimum opening deposits for money market funds are typically lower than money market account minimums.
- Accessible funds. Money market funds come with check-writing privileges and don’t have the same monthly transaction limits as money market accounts. You’re also free to buy or sell your shares at any time.
- Tax benefits. Taxable money market funds are common, but lower yield tax-free options are also available.
Cons
- Potential for loss. Returns from these funds depend on fluctuating market rates, so it’s possible for money market funds to lose value.
- Not FDIC-insured. A money market fund may not be for you if you want your funds insured.
Money market account vs. money market funds: Which one is safer?
Both accounts are relatively safe. But money market accounts take the edge on safety because they’re federally insured and your earnings aren’t tied to the market. The only time your balance will dip is if you withdraw funds.
Money market account vs. Money market funds: Which one is best for me?
Still trying to figure out whether a money market account or money market fund is right for you? This may help:
- Choose a money market account if…you’re a saver who wants to earn a higher interest rate than you would with a traditional checking or savings account.
- Choose a money market fund if… you’re an investor who wants a relatively safe way to protect your investment funds while earning some interest.
How to compare money market accounts vs. money market funds
Compare the following elements to decide which investment is best for you:
- Interest. Are you looking to safely park your cash or earn interest? Money market accounts tend to have higher yields than money market funds, so explore your options in both arenas before you make a decision.
- Deposit requirements. To open a money market account or money market fund, you’ll need a minimum opening deposit. Money market funds typically have lower minimums up to $5,000 while money market account minimum deposits can be as high as $25,000.
- Fees. You may encounter monthly maintenance and ATM fees when you open a money market account. On the other hand, money market funds may impose trade fees. Ask your provider about fees associated with the account you’d like to open and how to avoid them.
- Accessibility. How often do you want to tap into your funds? Like savings accounts, money market accounts are typically limited to six transfers monthly and many providers impose excessive transaction fees for surpassing this limit. Conversely, money market funds tend to offer more account accessibility with unlimited withdrawals, transfers and check-writing privileges.
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Bottom line
These accounts may share a similar name, but both offer a unique earning opportunity with discerning features and drawbacks. Money market accounts have high minimums and rates but limited accessibility. And money market funds have fluctuating returns coupled with low minimums and fees.
Review your account options with multiple providers before you make a decision.
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