money market account vs fund

Don’t Mix Up a Money Market Account with a Money Market Fund


by

22 July,2013

In the current low-rate environment, many consumers are looking for ways to improve the yield they receive from their deposit accounts.

In some cases, opening a money market account can be an attractive option. Some money market accounts have better yields than “regular” bank accounts, and this makes them attractive. But before you open a money market checking account, make sure you understand what you are getting into.

Money Market Checking

A money market checking account is one that pays interest based on the current money market rates. While the yield isn’t going to be high on this type of account, it’s still better than earning 0% interest on a “regular” checking account.

Plus, a money market checking account is FDIC insured, so you don’t have to worry about losing your money if the bank fails. You can earn interest on your checking, and squeeze just a little bit more out of your finances.

Before you open a money market checking account, though, it’s important to make sure you understand all of the terms and conditions. Many of these types of accounts come with monthly fees unless you maintain a minimum balance or complete a certain number of transactions each month. Find out what the situation is before you commit to the account. If you won’t be able to meet the terms for a fee-free experience, don’t open the account. Instead, stick with the “regular” checking option. There’s nothing wrong with a basic account that doesn’t earn interest for your day to day transactions. It’s better than earning meager interest that is overwhelmed by your $9 monthly fee when you don’t maintain the minimum balance.

Also, you need to be aware that there is a difference between money market checking and a money market investment account. These are very different accounts, and you need to know the difference before you go into your bank.

Don’t Confuse Your Checking Account with a Mutual Fund

Many banks also offer you the chance to invest in a money market mutual fund. Many of these funds even come with the ability to write a limited number of checks each month. You might even receive a debit card to allow you to access the fund. This can lead to a bit of confusion. A money market fund might have a lot of the trappings of a checking account, but it’s vital that you understand that it isn’t a checking account.

A money market mutual fund is not insured by the FDIC. While there are regulations in place to help protect you when it comes to these funds, the reality is that they are still investment products, and not true banking products. You run the risk of losing your money. Additionally, there might be some restrictions on your access to your money in these types of funds.

If you go into a bank and ask about money market accounts, make sure you specify the type of account that you are interested in. You need to be clear that you are looking into a money market checking account, and not a mutual fund account.