The term “money market” often gets brought up when discussing different savings options, but what exactly is a money market? There are two types of money markets: “Money Market Accounts” and “Money Market Mutual Funds”. So, what is the difference between these two?
Money Market Accounts
Money market accounts are almost a combination of checking and savings accounts. They offer interest rates like savings accounts, but they also provide debit cards and checks like checking accounts. Much like savings accounts, money market accounts rules and rates differ from bank to bank. Some banks require a minimum deposit for their money market accounts, whereas others do not. They are also FDIC-insured like most bank accounts are. Often times money market accounts have a lower return than money market mutual funds but are also slightly less risky due to being backed by the FDIC. Another advantage of money market accounts is that they are offered by the majority of banks, which allows you to keep those funds in the same place as your checking accounts.
Money Market Mutual Funds
Money market mutual funds act very similarly to standard mutual funds, with a few different exceptions. Money market mutual funds are slightly riskier than bank money market accounts as they are not FDIC-Insured. However, they are still significantly less risky than other mutual funds, because they invest in short-term, higher-quality securities. According to Charles Schwab, they are designed to provide high liquidity with lower risk, as well as stability of capital and they typically have higher yields than some other cash products. With Schwab’s money market fund currently paying 5.24% (as of the writing of this article on 10/4/2023), it can be an excellent investment for those looking to earn money while taking on very little risk.
An advantage of money market mutual funds is that they are much more liquid than other mutual funds. Money market mutual funds combine the best of both worlds between mutual fund investments and money market accounts, offering a much lower risk than mutual funds and a better rate of return than money market accounts. This makes them a great choice for an investment to get safe money to grow, making it a solid option for a savings account.
If you have a sinking fund because you are saving for a down payment for a house, saving for a vacation or other large expense in the future, or you have an “extra” emergency fund, you might want to consider putting that money in a money market mutual fund to earn over 5% (as of 10/4/23).
Money Market Funds through Whitaker-Myers
Since Whitaker-Myers uses Charles Schwab as our custodian, we can access the Schwab money market fund for those interested. If you are saving for one of the abovementioned expenses, having this in a brokerage account makes the most sense. If you don’t have a brokerage account, your Advisor would happily help you open one.
If you have a question on which money market would benefit you and your specific situation, talk to one of the advisors on our team with Whitaker-Myers Wealth Managers. We are happy to help answer any questions you may have.
Bank Money Market Account vs Brokerage Money Market Funds
October 19, 2023
David Gearhart
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