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
-
Trusting Fintech: Four Critical Moves to Protect YourselfA few relatively easy steps can help you safeguard your money when using bank and budgeting apps and other financial technology.
-
Four Steps to Prepare Your Finances for Divorce
Divorce is rarely easy, but getting financial paperwork in order, working with professionals and making tough decisions now can take some of the stress out of it.
-
1-Year CD Rates June 2023
Savings Many 1-year CD accounts are already offering rates of 5% or more. We look at the options on the market.
-
Mortgage Rates and Payments Keep Rising, Creating Market Misery
Mortgages Current mortgage rates and payments continue to rise resulting in buyer demand stalling and housing sentiment at low levels.
-
How to Open a Savings Account Online
You may be wondering how to open a savings account online. The process is usually simple and straightforward — with just a few steps you’ll be able to start saving your hard-earned cash.
-
CD Rates Are Rising, Shop Around to Get the Best Returns
High-interest CD rates are back — shop around for the best 5%+ deals.
-
U.S. Household Debt Hit a Record $16.90 Trillion in 2022
Household debt hit a record $16.90 trillion at the end of 2022, jumping $394 billion in the fourth quarter of the year alone.
-
Want to Earn More Money? Consider These Five Ways
Instead of simply vowing to save more money, why not commit to earning more? You could ask for a raise, try a side hustle or switch to a bank offering a higher savings rate.
