With the names sounding so similar, a money market account and a money market fund can be confusing at times to many people, and considered a different name for the same investment vehicle, when in reality they’re very different in spite of similar sounding names.

For a money market account, this is a savings account banks or credit unions will offer to their customers, where the difference is it’ll have a higher interest rate based on higher minimum balance requirements than a passbook savings account would, which usually has no minimum balance requirements.

A money market account’s funds will also be backed up by the Federal Deposit Insurance Corporation (FDIC), for up to $250,000 at this time, which could be brought back down to the normal $100,000, once the temporary higher protection may be lifted.

Another element of the money market account is you can only make up to six withdrawals a month, and in some cases also have check writing privileges of three a month for the account. Fees can be applied if you go beyond the limitations of the terms of agreement, so they should be read and understood so you aren’t charged unnecessary fees.

If you belong to a credit union, your capital in a money market account would be protected by the National Credit Union Administration, which is also a federal agency.

A money market fund on the other hand is a mutual fund which invests in short-term securities like U.S.Treasuries, commercial paper and CDs, among a number of others.

Although a money market fund has no guarantees for you capital, they rarely fall below their net asset value, although a recent case happened when it did, when Lehman Brothers collapsed last year and people lost money in their money market fund accounts. This is extremely rare, but it can happen.

Of course the slightly higher risk comes from slightly better returns.

Either one of these accounts should be used to place your backup capital for emergencies, where you can get almost immediate access to your money.

The trade-off between the two is a little less interest with absolute guarantee for your money in a money market bank account, while the money market fund will normally give you a better return with a little more risk, and no guarantee of your money.

Tags: money market account, Money Market Fund, saving money, saving strategies, savings, savings accounts, savings plan

This entry was posted on Monday, September 21st, 2009 at 2:47 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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