Money Market Accounts VS Money Market Mutual Funds
What is the difference between money market accounts and a money market mutual funds?
Money Market Accounts
Money market accounts are savings accounts which earn interest and are made available by financial institutions that are FDIC insured. These money market accounts have limitations regarding transactions. Generally speaking, you are allotted at most five to six withdrawals or transfers a month. Financial institutions pay a higher interest rate to money market accounts than a savings account. Often you will find money market accounts that require a minimum deposit or balance.
Money Market Mutual Funds
One major difference between a money market account and a money market mutual fund is that a money fund is not insured by the FDIC and consists of investments held by the mutual fund that usually are related with short term debt. With the shortness of these maturities they are often referred to as cash investments.
Interest rates on money market funds adjust according to the amount of time you plan on having the account. Your rates are going to be different if you are opening a 3 month CD vs a 2 year CD.
It is required by the Securities and Exchange Commission (SEC) that the maturity of investments in a money fund should be less than 90 days. This helps reduce the risk that comes with investing in a money market fund.
Owner shares in a mutual fund means that you own a small interest in the investments relative to the mutual fund. The interest rate is what fluctuates and not the share price and the share of a money fund should be one dollar.
Interest rates on money market funds adjust according to the amount of time you plan on having the account. Your rates are going to be different if you are opening a 3 month CD vs a 2 year CD.
