What Is the Difference Between a Money Markey Account & a Money Market Fund?
A money market account is a deposit account at a bank whereas a money market mutual fund is an investment account. Both are very liquid, meaning you can withdraw money easily, but the accounts are different when it comes to risks and returns.
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Rate of Return
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The money in a money market deposit account receives a set interest rate, usually based on the amount of money in the account. A money market mutual fund is invested in short-term debt securities, so the rate of return has the potential to be higher but is not fixed.
Security
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Money market deposit accounts are slightly more secure than money market mutual funds because they fall under Federal Deposit Insurance Corporation (FDIC) coverage. Money market mutual funds are not insured, but there are strict guidelines about what the money is invested in that makes them generally very safe investments.
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Fees
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There are no management fees associated with a money market deposit account. Money market mutual funds will charge a small annual fee and a percentage of the account's value, such as 0.5 percent.
Risk
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You cannot lose money placed into a money market deposit account as long as it is under the insurance limits set by the FDIC (as of 2009, $250,000 per person per institution). Though it is unlikely, a money market mutual fund can lose money.
Taxes
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The interest earned on money market deposit accounts must be reported as taxable income. Some money market mutual funds, however, only invest in tax-free debt securities, such as municipal bonds, so you may be able to lessen your tax bill at the end of the year.
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