Money Market Accounts vs. Money Market Funds: Similar Names, Different Protections
A money market account is a bank deposit. A money market fund is an investment. They pay similar kinds of yields but work differently, especially in how they're protected. Here is the comparison.
The names are almost identical, and both are used to hold cash. But a money market account and a money market fund are different products, offered by different kinds of institutions, with different protections.
Side by side
| Money market account | Money market fund | |
|---|---|---|
| What it is | A bank or credit union deposit account | A mutual fund investing in short-term debt |
| Where you get it | Banks and credit unions | Brokerages and fund companies |
| Deposit insurance | Generally FDIC or NCUA insured, up to limits | Not deposit insured |
| Price | Your balance doesn't fluctuate | Most aim to keep a stable $1 share price, not guaranteed |
| Yield | Set by the bank, can change | Reflects short-term rates on its holdings, minus expenses |
| Access | Often limited checks or debit access | Sell shares, usually settle quickly |
| Minimums | Some require a minimum balance | Some have investment minimums |
Money market accounts
A money market account is a savings deposit account, often with a few check-writing or debit features. Banks set the rate and can change it. Deposits are generally covered by FDIC insurance at banks, or NCUA insurance at credit unions, up to applicable limits per depositor, per institution, per ownership category.
Money market funds
A money market fund is a type of mutual fund that invests in short-term, high-quality debt such as Treasury bills, government agency securities, and commercial paper. Many funds aim to keep a stable share price of $1 so your balance grows only through dividends. Types include:
- Government funds, investing mostly in government securities;
- Treasury funds, investing in Treasury securities;
- Prime funds, which can hold corporate debt;
- Municipal funds, which can offer tax-exempt income.
Money market funds are regulated and are generally considered low-risk, but they're not FDIC insured, and it's possible to lose money. They charge an expense ratio, which reduces the yield.
Taxes
Interest from money market accounts and dividends from most money market funds are generally taxable. Treasury-focused fund income may be exempt from state income tax, and municipal funds may be exempt from federal and sometimes state tax. Tax treatment depends on your situation.
Which fits which purpose
- Emergency fund at a bank: a money market account or high-yield savings account offers insured, stable balances.
- Cash inside a brokerage account: money market funds are a common place to hold uninvested cash.
- Large balances: consider deposit insurance limits for bank accounts, or government money market funds.
See also CD ladders and building an emergency fund.
The takeaway
A money market account is an insured bank deposit; a money market fund is a low-risk investment without deposit insurance. Both can be good places for cash. Know which one you have, and compare yields after any fees.
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