Money Market Account or Money Market Fund? How to Choose
Whether you choose a money market account or money market fund largely depends on the money's purpose.
Two kinds of money market vehicles are money market mutual funds and money market accounts. If you're looking for a place to park your cash, the difference is often a point of confusion.
What are Money Market Accounts?
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. (FDIC) see FDIC, NCUA and SPIC insurance: Coverage amounts and how it works.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What are Money Market Funds?
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 (CDs). Money market funds are low-risk — but they don’t match the safety of money market accounts, and they are not FDIC-insured.
Yields
When interest rates are low — as they were for years — money-fund yields fall 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.
But, in a different economy, where the Fed has raised interest rates meeting after meeting, funds are competitive again. As the Crane ranking data shows, you could currently get as much as 4.71% on a taxable money fund, 2.44% on a tax-free fund and as much as 4.44% on a money market account.
Purpose
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.
Read More
Lisa has been the editor of Kiplinger Personal Finance since June 2023. Previously, she spent more than a decade reporting and writing for the magazine on a variety of topics, including credit, banking and retirement. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.
-
Tax Breaks That Get Better With Age
Tax Breaks Depending on your age, several tax credits, deductions, and amounts change — sometimes for the better.
By Kelley R. Taylor Published
-
How Inflation, Deflation and Other 'Flations' Impact Your Stock Portfolio
There are five different types "flations" that not only impact the economy, but also your investment returns. Here's how to adjust your portfolio for each one.
By Kim Clark Published
-
More Signs of Belt-Tightening and a Slowing Economy: The Kiplinger Letter
The Kiplinger Letter Although fewer banks are tightening lending standards, more businesses and households are feeling the squeeze.
By Rodrigo Sermeño Published
-
The Fed Holds Interest Rates Steady
The Fed cautions that inflation remains high and it is prepared to adjust its monetary policy ‘as appropriate if risks emerge.’
By Esther D’Amico Published
-
5 Ways to Shop for a Low Mortgage Rate
Becoming a Homeowner Rates are high this year, but you can still find an affordable loan.
By Daniel Bortz Published
-
Banks Lost Billions on Bad Loans Last Quarter: Kiplinger Economic Forecasts
Economic Forecasts Bank deposits are also down, and more people are tapping into their savings.
By Rodrigo Sermeño Published
-
Bond Yields Highest Since 2008
The yield on the 10-year Treasury increased 1.6 basis points to reach 4.258% on Wednesday afternoon, up from 4.22% on Tuesday. This is the highest level it had been since June 13, 2008.
By Erin Bendig Published
-
What Is the Federal Funds Rate?
The federal funds rate can impact a host of borrowing costs, and thus the entire U.S. economy.
By Jeff Reeves Last updated
-
Is It Prime Time for Money Market Funds?
The Fed's interest rate hike could be a boon for savings accounts. Here's why.
By Seychelle Thomas Published
-
What the Fed's Rate Pause Means for Savings
At the latest policy-setting meeting, the Fed held interest rates steady. Here's what that means for savings rates.
By Erin Bendig Last updated