You've Heard of Money Market Accounts and Money Market Funds...But What's the Difference?

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

KEY POINTS

  • A money market account is an FDIC or NCUA-insured deposit account.
  • A money market mutual fund is an investment, offering both reward and risk.
  • There are no fees associated with money market accounts. The same cannot be said for MMMFs.


Two products with similar names but different purposes.

Whether you're reading a book or speaking with a broker, understanding financial terms is a lot like learning a new language. At some point, everything starts to sound alike. Here, we cover two different financial products. Although they have similar names, they work quite differently.

What is a Money Market Account (MMA)?

The banking product that can be most accurately compared to an MMA is a high-yield savings account. Both pay interest on your deposit. Neither has any risk because it's either NCUA- or FDIC-insured for up to $250,000 per account holder, per account.

When you deposit money into an MMA, the more you deposit, the higher the interest rate you'll earn. There may also be a minimum balance to adhere to.

Although money deposited into an MMA earns relatively little interest, it is safe, and you have access to the funds whenever you need them.

MMAs are good for stowing short-term savings. If you want to keep it liquid but also want to earn a little interest, consider putting your money into a money market account.

What is a Money Market Mutual Fund (MMMF)?

Think of an MMMF as your most stable friend, the one who looks both ways before crossing the street and almost always makes good decisions. They may not be the most colorful or dramatic of your friends, but they are steady.

As an investment, an MMMF is a lot like that friend. Its sole goal is to be dependable and provide safe returns. There are all types of MMMFs, and each MMMF holds its own types of investments. What all those accounts have in common is that they attempt to avoid huge risks and provide you with a stable asset.

When compared to other investments, MMMFs are inexpensive. However, due to fluctuations in the market, an MMMF is not where you want to keep an emergency fund. After all, once you've gone to the trouble to build an emergency savings account, you don't want to risk it.

Rather, an MMMF is an appropriate add-on to an established portfolio. If other investments in your portfolio are risky, an MMMF can provide a nice balance.

Major differences

Here are some easy takeaways to help you remember the difference between a money market account and a money market mutual fund:

  • While an MMA is a deposit, an MMMF is an investment.
  • Because it's considered a bank deposit, MMAs are insured for up to $250,000 per depositor per account.
  • As an investment, MMMFs enjoy no protection or insurance. It's possible that your investment will perform well, and it's possible that you'll lose a large portion of your capital.
  • While MMAs generally have no fees, investing in an MMMF does carry fees.

Neither of these banking products is better than the other. Instead, they are complementary, each designed to enhance your financial security

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of Feb 23, 2024 Ratings Methodology
Advertisement
SoFi Checking and Savings American Express® High Yield Savings
Member FDIC. Member FDIC.
Rating image, 4.75 out of 5 stars.
4.75/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: up to 4.60%

APY: 4.35%

Min. to earn APY: $0

Min. to earn APY: $1

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow