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
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
October CPI Report Hits the Mark: What the Experts Are Saying About InflationCPI While the current pace of rising prices appears to have leveled off, the expected path of rate cuts has become less certain.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
Market Reaction to Election Results: What the Experts Are SayingJobs Report Election uncertainty has been removed from the list of investors' worries, helping equities soar.
-
Jobs Growth Stalls Amid Hurricanes and Strikes: What the Experts Are SayingJobs Report A dismal October payrolls print supports the case for a slow and steady pace of rate cuts.
-
CPI Report Points to Gradual Pace for Rate Cuts: What the Experts Are Saying
CPI Inflation surprised to the upside last month but the disinflation trend remains on track.
-
Strong September Jobs Report Puts Soft Landing in Sight: What the Experts Are SayingJobs Report A blowout reading on nonfarm payrolls takes another jumbo-sized cut to interest rates off the table.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Will the Fed Cut Rates in September? Here's What Experts Predict
The race is already on to predict the trajectory of future reductions to borrowing costs.
