Find the Best Money Market for You

Two kinds of money market vehicles are money market mutual funds and money market deposit accounts. For those looking for a place to park cash, the difference is often a point of confusion. Banks and credit unions offer the deposit-account version, usually called a money market account, or MMDA. These accounts come without market risk and are protected by the Federal Deposit Insurance Corp. (see Are Your Bank Deposits Insured?). The mutual fund version—often called a money market fund, or just money fund—holds such short-term investments as Treasury bills and other government securities, commercial paper, and certificates of deposit. Money market funds are low-risk—but they don’t match the safety of money market accounts, and they are not FDIC-insured.

Starved for yield. The Federal Reserve lopped short-term interest rates to near zero earlier this year, and in response, money-fund yields have fallen more quickly than those of money market accounts. “Yields on bank deposits tend to lag the Fed, and that’s a benefit when rates are going down,” says Peter Crane, president of Crane Data, which tracks money market funds. As shown in the tables, you could recently get as much as 0.6% on a taxable money fund, 0.32% on a tax-free fund and about 2% on a money market account. Taxable money market funds recently had an average 30-day compound yield of 0.09%, and tax-free funds yielded 0.05%, according to iMoneyNet. Money market account yields averaged 0.09% on balances of less than $100,000, according to the FDIC.

The decision of whether to use a money market fund or account largely boils down to the money’s purpose. For emergency savings or other cash that needs to be safe and readily accessible from your bank, a money market account makes sense. Money that you may want to quickly move into the market—say, to scoop up stocks at low prices during a dip—is often best parked in a money market fund linked to the rest of your investment portfolio.