Money market accounts (MMA) and money market funds (MMF) may have similar names, but they operate very differently. Learn how they differ and be better equipped when deciding where to put your money.
Key differences between money market accounts and funds
Let’s take a look at a clear side-by-side comparison of MMAs and MMFs:
Money Market Account | Money Market Fund | |
|---|---|---|
Type | Interest-bearing deposit account | Mutual fund; investment vehicle |
Regulation | Insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor per qualifying account ownership category | Uninsured, but regulated by the Securities and Exchange Commission |
Risk | No direct losses | Typically lower risk, but losses are possible |
Returns | Variable based on the account's annual percentage yield | Variable based on market performance |
Accessibility and liquidity | Accessible through checks, debit cards and ATM withdrawals | Buy and sell shares through a brokerage |
Tax implications | Interest is taxed as regular income | Some produce earnings that may be exempt from federal and state taxes |
What is a money market account?
Money market accounts (MMAs) are a type of deposit account that functions like a combination of a savings account and a checking account. An added benefit of MMAs is the ability to earn a variable rate of interest, similar to a high-yield savings account, while still having access to your money through a debit card and checks.
Read more: Dive into the details of money market accounts vs. savings accounts.
Are money market accounts safe?
MMAs are insured by the Federal Deposit Insurance Corporation, or FDIC, for up to $250,000 per depositor per qualifying ownership category.
Pros and cons of money market accounts
If you’re keeping money in your checking or standard savings account and you’d like to earn interest, a money market account could be a good choice. Ally Bank’s Money Market Account offers a competitive interest rate, no monthly maintenance fee and access to your money at any time. Note that there's generally a limit to the number of transactions per statement cycle (for Ally Bank, that limit is ten). If you don’t need debit and checking capabilities, you could also consider an Ally Bank high-yield savings account.
An added benefit of MMAs is the ability to earn a variable rate of interest, similar to a high-yield savings account.
What is a money market fund?
Money market funds, or MMFs, are a type of mutual fund. Mutual funds hold different types of investment assets, pooling money from numerous investors and investing it in different securities. Unlike a money market deposit account, a money market fund is an investment vehicle and susceptible to market volatility.
Read more: What’s the difference between a mutual fund and an index fund?
Are money market funds safe?
Unlike MMAs, money market funds are not insured. That being said, as an investment vehicle, MMFs are typically considered to be relatively lower risk. All investments come with some amount of risk, so if you don’t have that tolerance, an MMA or high-yield savings deposit account may be a better choice for you.
Pros and cons of money market funds
Money market funds are a form of investing that can serve as a lower-risk entry point to get your money into the market. Their short maturity rates may also be appealing for some investors. But earning a return on your money is not guaranteed with MMFs, and earnings can be minimal when compared to other investment choices and losses are still possible. MMFs also tend to have a higher minimum investment amount than, say, exchange-traded funds.
Compare all available choices
Now that you understand the differences between the deposits account that is a Money Market Account and the investment vehicle that is a money market fund, you can make more informed decisions about what’s best for your money
