Money Market Funds vs. Money Market Deposit Accounts: Similar Names, Different Risks

A money market fund and a money market deposit account can appear beside each other in a financial app, but they are different products. One is an investment fund; the other is a deposit account when offered by a bank. Their protection, pricing and access terms should be examined separately. The similarity of the names is not a reason to assume that the money has the same legal treatment or that an advertised yield is directly comparable.

Identify the legal product

A money market mutual fund pools investors' money and invests according to its stated strategy and regulatory requirements. A money market deposit account is an account at a depository institution, subject to its agreement and applicable insurance rules. Read the actual product document, not only the app category called cash. A brokerage can offer several cash arrangements, including bank sweeps and fund holdings. The screen's layout does not tell you which entity owes the money or which protection applies.

Deposit insurance does not cover a mutual fund

Eligible deposits at an FDIC-insured bank can receive insurance within the applicable limits and ownership rules. An investment in a money market fund is not FDIC-insured and can involve losses. Securities-customer protection, where applicable, addresses different risks and is not a guarantee against a decline in the fund's value. Do not combine the concepts under the broad word protected. Ask what event the protection covers, which legal entity is involved and how the records establish your ownership.

Understand the fund's holdings

Government, prime and tax-exempt money market funds have different portfolios and considerations. Read the prospectus for eligible investments, objectives, expenses and redemption provisions. Some funds seek a stable share price, while others use a floating value. A stable-price objective does not create a government guarantee. The credit quality, liquidity and maturity of holdings matter, as do the fund's applicable rules. Avoid choosing solely from a yield ranking without knowing what investments produced that yield and what conditions could affect access.