Money Market Account Vs. Money Market Fund: What’s The Difference? (2024)

At first blush, a money market account may sound like the same thing as a money market mutual fund. However, these two financial tools have differences worth noting.

Here’s how to decide which is the better fit for your financial goals.

What Is a Money Market Account?

A money market account can best be described as a mix between a checking and savings account. It shares some features from both types of accounts, making it somewhat of a hybrid.

How Does a Money Market Account Work?

Available at banks and credit unions, money market accounts offer several appealing features for consumers:

• Interest. Money market accounts earn interest like savings accounts.
• Access. You may get a debit card and check-writing privileges with a money market account, offering a checking account’s features with the interest-bearing nature of a savings account.
• Insurance. Like your checking and savings account, a money market account is insured by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Association) up to $250,000 per depositor, per ownership category.

Consumers may like money market accounts because they offer interest earnings and more liquidity than savings accounts.

But money market accounts have some functional drawbacks.

Like savings accounts, money market accounts usually come with transaction limits. In the past, money market account holders have been limited to six convenient withdrawals or transfers each month. This means you can only make a total of six debit, check or digital transfers each month (e.g., transferring money to your checking account or paying a bill).

In April 2020, the Federal Reserve issued an interim rule that lifted the six-transaction limit on savings deposit withdrawals (there is no expiration date for this interim rule as of January 2023). However, your bank or credit union has the right to retain the six-withdrawal limit and charge a fee if you exceed it. Speak with your financial institution before opening a money market account to confirm the account’s transaction limits and fees meet your needs.

While money market accounts offer higher interest rates than regular checking and savings accounts, these higher rates come with a caveat. Money market accounts tend to have higher opening balance requirements than a standard checking or savings account, some as high as $25,000. Some consumers might find these account minimums challenging to meet.

How Do You Open a Money Market Account?

Opening a money market account can either be done in person or online. You’ll need to complete an account application, provide the necessary identification and then fund your new account with the required minimum deposit.

What Is a Money Market Mutual Fund?

Money market mutual funds, also known as money market funds, are investment products that allow consumers to earn interest in a lower-risk environment than the stock market. They offer similar liquidity to a money market account but have differences that distinguish them from a deposit account at your bank or credit union.

How Does a Money Market Fund Work?

A money market fund is like other mutual funds: It holds a “basket” of securities that generate the gains and losses investors experience as shareholders. Money market funds usually hold securities like U.S. Treasury bonds, corporate bonds and other short-term, low-risk investments to achieve conservative gains instead of aggressive growth.

Here’s how money market funds compare to money market accounts:

• Interest. 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.
• Insurance. Since money market funds are investment products, they’re not insured against loss by the FDIC or NCUA. Your investment could lose money.

Money market funds are issued in shares, and fund managers try to keep the price per share (also referred to as the net asset value, or NAV) as close to $1 as possible. While it’s rare that a money market fund would lose investor money (often referred to as “breaking the buck”), it has happened as recently as 2008 during the financial crisis. At that time, the Primary Fund could only pay investors 97 cents on every dollar invested.

Investors may use money market funds as an alternative to a high-yield savings account. But investors should be aware of any time delays between transferring money out of a money market fund at their brokerage. There will usually be a transfer time between making the withdrawal from the money market fund and having funds arrive in their bank account.

Finally, consumers should note that while a money market account may have a monthly maintenance fee, money market funds have management fees, also known as expense ratios. These fees are stated as percentages and impact your overall returns since they’re deducted from your earnings. Be sure to compare the cost of any account fees and expense ratios and consider how those expenses will impact your earnings.

How Do You Open a Money Market Fund?

To open a money market fund, you’ll need to open a brokerage account. Once you complete the account application and provide the necessary identification information, you’ll make an opening deposit to your account.

However, unlike a money market account where the deposit is the last step between you and earning interest, you’ll need to take some additional steps to invest in a money market fund.

First, you’ll need to research available money market funds. Once you find one that suits your needs, you’ll need to place an order to purchase shares of the fund. Once those shares are purchased, your money will go to work for you.

How Can You Compare a Money Market Account vs. Money Market Fund?

This table can help you quickly compare the features of a money market account vs. a money market fund:

When Should I Consider a Money Market Account?

If you’re intrigued by the potential for interest rates higher than the typical savings account, choosing a money market account could be wise. The following considerations can help you decide if a money market account fits your savings and liquidity needs:

• Interest rates. If you want a higher interest rate than a savings account but don’t want to lock your money up in a longer-term commitment like a CD.
• Timing. If you don’t need everyday access to your savings but plan on making a big-ticket purchase in the near future.
• Access. If you prefer the ease of using a check or debit card to access your savings.
• Risk. If you’re risk-averse, you may prefer a money market account’s low risk since the funds are FDIC or NCUA insured.
• Minimums. If you have the cash available to meet the account minimums required by banks offering the highest interest rates.

Money market accounts also can be attractive places to keep your emergency savings, especially since they provide debit cards and check-writing privileges.

When Should I Consider a Money Market Mutual Fund?

If you’re interested in earning a slightly higher interest rate than a money market account, a money market fund could fit the bill. Here are some considerations to help you decide if a money market mutual fund aligns with your needs:

• Interest rates. If you want a higher rate of return than a money market account but don’t want to invest in the stock market.
• Timing. If you don’t need everyday access to your savings and have a longer-term savings goal like a house down payment or your emergency fund.
• Access. If you don’t anticipate needing immediate access to your savings since you’ll likely have to transfer funds from your money market fund to your bank account.
• Risk. If you don’t mind bearing a little risk in exchange for the higher potential rate of return—money market funds aren’t FDIC or NCUA insured and could incur a loss.
• Minimums. If you have less cash available than a money market account requires and you need a low-risk investment vehicle with a low-to-no minimum balance.

Bottom Line

Both money market accounts and money market mutual funds offer investors several benefits over a typical low-interest savings account. To find your ideal fit, be sure to consider when and how you might need access to the money and the level of risk you’re willing to undertake.

While both are low-risk vehicles, only money market accounts are FDIC or NCUA insured. Money market funds can lose money in extreme market conditions.

Frequently Asked Questions (FAQs)