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Money market accounts vs. money market funds
High minimums and account accessibility help separate this savings account and mutual fund.
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Money market accounts are savings accounts with high minimums while money market funds are mutual fund investments with no guarantee of return. Compare these banking and investment tools by learning what features separate money market accounts from money market funds.
What’s the difference between a money market account and a money market fund?
Money market accounts and money market funds offer the opportunity to earn, but each account has its own set of defining characteristics:
| 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
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.
- 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.
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How to compare money market accounts and 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.
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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