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Comparison of Money Market Accounts vs Money Market Funds

If you are looking for an alternative to money market mutual funds, it may be good to recommend money market accounts. Many people fail to distinguish between the two, but the major difference comes in terms of choices and risks involved.

In order to understand the difference let's consider them separately.

Money market funds offer a little bit higher yield than money market accounts. They also provide more options such as municipal money market funds, US Treasury backed money market funds, socially responsible money market funds and many others. All of these products give investors the opportunity to select the money market instruments that will be applied within the fund.

Different money market fund types are applied in a different way and for different purposes by various investors.

On the other hand, money market accounts are less complex than money market funds. It is easy to invest in money market accounts, since they are available through traditional banks. They provide relative safety and an average annual percentage yield.

Every investor has his/her risk aversion level. Risk-averse investors are willing to give up some returns for the sake of safety. If you are such an investor, then it is recommendable that you select money market accounts. The major reason for this is that they are typically insured with the FDIC.

Money market accounts are also recommended when you don't need the options that money market funds provide.

You should determine what your needs are in order to select between the two.

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