Money Market Account vs Money Market Fund: What is the Difference?

June 10, 2023

In this highlight, we discuss the difference between a money market fund and a money market account.

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.


Let’s move on to Brian H’s question. He mentions an article he recently read that highlights the difference between a money market account at a bank and a money market fund at a brokerage. We discussed this topic on our previous SVB show. Are both options suitable for an emergency fund? Great!

Brian’s question revolves around the confusion caused by the one-word difference between “money market account” and “money market fund.” That one word can make a significant difference. When people talk about cash savings and high-yield savings accounts, they often refer to opening a high-yield savings account listed on websites like bankrate.com. In most cases, these high-yield options are money market accounts. They offer readily available cash that is fully liquid. Some well-known examples are Capital One, Marcus, and Ally. These accounts are covered by FDIC insurance, provided the bank is an FDIC member. You can verify a bank’s FDIC membership at fdic.gov. With an FDIC-insured money market account, your cash deposits are protected by the federal government’s full faith and credit, up to insurable limits. The limit is $250,000 for single depositors and $500,000 for joint depositors.

Now, let’s discuss the other investment option that has gained popularity with rising interest rates. I apologize for my previous error; the correct website to check FDIC membership is indeed fdic.gov. Money market mutual funds are investment vehicles or mutual funds that invest in cash and cash equivalents. Cash equivalents include short-term government debt issues, treasury bills, and certificates of deposit. Since they are investment accounts, they can potentially yield slightly higher returns. However, it’s important to note that money market mutual funds are subject to potential loss of principal, although reputable companies like Fidelity, Vanguard, and Schwab work diligently to mitigate risks. You can examine the composition of the specific money market mutual fund you hold to assess its liquidity. Reputable funds generally hold a significant portion of fixed income dated less than 30 days, ensuring liquidity. While money market mutual funds strive to maintain a stable value of $1 per share, significant market events can cause fluctuations. Nonetheless, these funds aim to be as secure and stable as money market accounts.

To clarify, money market accounts and money market mutual funds are not covered by the same insurance. Money market accounts are FDIC-insured, while money market mutual funds are protected by SIPC insurance. SIPC provides coverage against malfeasance or fraud by the investment company, such as Fidelity, for up to $500,000 of security value. However, large brokerages often acquire additional SIPC coverage to offer their customers more protection, especially for accounts holding millions of dollars. Therefore, both money market accounts and money market mutual funds are acceptable choices for parking your emergency reserves, but it’s crucial to understand their differences and associated risks. Personally, I employ a two-account system: a high-yield money market mutual fund for my emergency fund and a traditional brick-and-mortar checking account for day-to-day transactions. I maintain a link between the two accounts for easy transfers, which works well for me.

Remember to approach these options with full awareness of the risks involved and ensure your comfort level before allocating your funds. Either choice can serve as a suitable holding place for emergency reserves. For more information, check out our free resources here.



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!