By Harry Prabandham · Updated September 28, 2026
Personal Finance
Money Market Accounts vs. Money Market Funds
A money market account is an FDIC-insured bank deposit; a money market fund is an uninsured mutual fund that seeks a stable $1 price but can lose value.
Money Market Accounts vs. Money Market Funds
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What's the difference between a money market account and a money market fund?
- A money market account is a deposit at a bank or credit union, while a money market fund is a mutual fund held at a brokerage or fund company.
- Bank accounts are FDIC-insured up to $250,000 per depositor, per bank, per ownership category; funds aren't insured and can lose value.
- Fund yields follow short-term market rates, while the bank sets and can change the account's rate.
- Both are built for cash reserves and near-term needs, not long-term growth.
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Full Guide
What's the difference between a money market account and a money market fund?
- A money market account is a deposit at a bank or credit union, while a money market fund is a mutual fund held at a brokerage or fund company.
- Bank accounts are FDIC-insured up to $250,000 per depositor, per bank, per ownership category; funds aren't insured and can lose value.
- Fund yields follow short-term market rates, while the bank sets and can change the account's rate.
- Both are built for cash reserves and near-term needs, not long-term growth.
How does a money market account work?
- It's a savings-type deposit that may offer checks or a debit card for access.
- The rate is variable and set by the bank, sometimes with tiers or minimum balances to earn the top rate.
- Promotional rates can revert to lower levels after an introductory period.
How does a money market fund work?
- SEC Rule 2a-7 limits these funds to short-term, high-quality debt such as Treasury bills, repurchase agreements, and commercial paper.
- Government and retail funds can maintain a stable $1.00 share price, while institutional prime and tax-exempt funds use a floating price.
- The fund's expense ratio is subtracted from its yield.
- In September 2008, the Reserve Primary Fund's share price fell below $1.00, known as breaking the buck.
How do government and prime funds differ?
- Government funds invest at least 99.5% of assets in cash, government securities, and repurchase agreements fully backed by them.
- Prime funds also hold corporate debt such as commercial paper, typically for somewhat more yield and more credit risk.
- Since the SEC's 2023 reforms, funds can no longer suspend redemptions with gates.
- Institutional prime and tax-exempt funds must charge a liquidity fee when daily net redemptions exceed 5% of net assets.
What does SIPC cover, and what doesn't it?
- SIPC steps in when a brokerage firm fails and customer assets are missing, up to $500,000 including $250,000 for cash.
- It doesn't cover a decline in the value of a money market fund or any other investment.
- Deposits above the FDIC limit can be spread across banks or placed through deposit networks to extend coverage.
How are money market accounts and funds taxed?
- Money market account interest and most money market fund dividends are taxed as ordinary income.
- Dividends from funds holding Treasury securities may be partly exempt from state tax, depending on your state's rules.
- California exempts such dividends only when at least 50% of the fund's assets are in U.S. obligations.
- Municipal money market funds pay dividends generally exempt from federal tax, and sometimes from state tax.
Key takeaways
- Money market accounts are insured deposits; money market funds are uninsured securities.
- Government funds hold the highest-quality assets, and prime funds add some credit risk for yield.
- SIPC covers missing assets at a failed brokerage, not investment losses.
- State tax treatment of fund dividends depends on the fund's holdings and your state.
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