This Is the Key Difference Between a Money Market Account and a Money Market Fund

If you are looking for a safe place to put your emergency fund or other money you don't want to invest in the stock market, chances are good you will come across both money market accounts and money market funds as an option.

Both money market accounts and money market funds are relatively safe investments, but there are important differences between them. And, the biggest difference has to do with exactly what level of risk you're taking on.

Here's what you need to know.

This is what sets money market accounts and money market funds apart

Money market accounts are interest-bearing accounts held at financial institutions such as banks and credit unions. They tend to pay a higher rate of interest than a traditional savings or checking account and, unlike most savings accounts, you can easily access the money within them by using a debit card and checkbook with most banks that offer them.

Money market funds, on the other hand, are mutual funds invested in safe, high-quality assets such as cash, U.S. Treasuries, and other debt-backed securities with short maturity dates, including some corporate and municipal securities. You can also earn a higher rate of return with these accounts than with a standard checking or savings account.

But, the biggest difference between these two investments is the level of risk you are taking on. Money market accounts are typically FDIC insured. This means the money you put in them cannot be lost as long as your deposits don't exceed the FDIC-insured limits ($250,000 per depositor and account type).

Money market funds, on the other hand, are pretty safe investments but there is some risk of loss associated with them. They are not covered by FDIC insurance. While they are usually covered by the Security Investor Protection Corporation (SIPC), this only covers you in case your brokerage firm fails and the insurance only ensures you receive the shares you own. If the shares are not worth the amount you put in because the fund itself has suffered losses, you could end up losing money.

As finance expert Suze Orman explained when addressing the difference between money market accounts vs. funds: "You're guaranteed to get your shares back, but not necessarily the cash that you put in. Now, chances of it breaking the buck is pretty nil, but you just need to understand how it works."

Should you invest in a money market account or a money market fund?

Both money market accounts and funds can be a good, safe place to put your money -- especially since they can pay a higher rate of return than a typical savings or checking account without exposing you to much risk (or any risk in the case of a money market account).

Ultimately, you will need to decide if you'd rather opt for an insured account with no chance of your balance declining, or whether a money market fund is a better fit for your situation.