Am I Better Off With A Money Market Fund Or A Money Market Account

When investors are looking for more conservative options, they often look towards safer options such as money market account. However, oftentimes investors get are faced with the question of investing funds into a money market fund rather than a bank-based account. While a bank based account will offer a very conservative return on investment, sometimes as low as one half of one percent, a money market fund can at times yield a higher rate of return, but can also at times be a losing proposition during troubled economic conditions. Understanding the main differences between the two types of accounts can help any investor in deciding which option would better suit their financial needs for the future.

Essentially, a money market fund is set up by investing in short term debt securities. Money market funds can invest in government issued bonds, commercial paper sold by banks, and other types of money funds. The Securities and Exchange Commission requires that money market funds cannot invest an amount larger than five percent in any one issuer within a money market fund, with the exception of government-backed securities. Generally, the maturity of investments within a money market fund is no longer than 13 months. With a money market account, funds are invested directly into a bank for deposit, with a transaction limit and minimum required deposit, generally above $1000.00. Money markets in banks have rates of return which increase with a higher balance in the account, whereas the rate of return on a money market fund is dictated by the value of the investments themselves and how they perform on the open market. In money market funds, dividends are eligible to be paid out to investors, but generally at set times. A money market account limits withdrawal transactions in some cases to six per month, and some banks will charge exorbitant fees when going over those limits.

For investors looking for a completely safe option with a low rate of return, a money market account is definitely the right choice. However, if investors are looking for a little higher risk yet a higher rate of return, a money market fund can be a good option for them. In more tumultuous economic times, even the safer investments of money market funds has no guarantee of rate of return, so a bank-based account, even though the rate of return can be significantly lower, can be a safe haven for investors looking for safe havens for their cash.