dcsimg
 
Advertiser Disclosure: Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.

Ask the Expert: Money Market Accounts vs. Money Market Funds

July 08, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: How are money market accounts different from money market funds? Do I risk losing my money in either?

A: This is an excellent question, because from the names you would expect that money market accounts and money market funds were almost interchangeable. They are not -- there are important differences that can affect what you earn and how secure your money is.

Money market accounts are deposit accounts offered by banks. Money market funds are a type of mutual fund. In either case, the interest rate is earned by investing in what are known as the money markets -- essentially, short-term debt obligations. However, there are three important differences in the two vehicles:

  • Money market accounts draw from a broader pool of resources. While money market accounts are general obligations of a bank, money market funds rely on a specific portfolio of investments. If those investments go sour, the company operating the fund is not obligated to make up for any losses.
  • Money market funds pool your money with that of other investors. This means that as money flows in, returns can be diluted. As money flows out, sales can be forced at inopportune times. In the normal course of business, this isn't much of an issue, but when cash flows are heavy, it can have a material impact.
  • Money market funds are not FDIC-insured. For this protection, you'll want a money market account from an FDIC-member bank.

For most uses, the advantages line up on the side of money market accounts, so shop MoneyRates.com to compare rates and other terms offered on money market accounts.

Got a financial question about savings, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.

Your responses to ‘Ask the Expert: Money Market Accounts vs. Money Market Funds’

Showing 0 comments | Add your comment
Add your comment
(required)
(will not be published, required)