Money Market Funds Vs. Deposit Accounts
July 13, 2009 by Tisa Silver
Filed under Finance
What is the difference between a money market mutual fund and a money market deposit account?
In terms of protection, money market mutual funds (MMMF) are viewed as investments and money market deposit accounts (MMDA) are viewed as a form of savings.
Photo by Hello Turkey Toe, Courtesy of flickr
MMMFs are supposed to invest in short-term, low-risk debt. Since they are classified as funds, most offer protection from the Securities Investor Protection Corporation (SIPC).
The SIPC offers a greater amount of protection per account than the FDIC, but the protection does not cover all losses of value.
The SIPC steps in to cover missing securities if a brokerage firm is unable to produce cash or securities that should have been in customer accounts.
MMDAs are offered by banks and accountholders are protected by the Federal Deposit Insurance Corporation (FDIC). The FDIC offers protection to all of a bank’s depositors up to a certain amount per account. Since saving is supposed to be safe, the protection applies to all.
Both MMMFs and MMDAs typically require a minimum balance and allow accountholders to write checks (within limitations). For savings accounts, they offer relatively competitive rates.
However, in tough economic times, the nature of protection could be a distinction worth pondering if you had to choose between the two. FYI – In 2009, there have been 53 bank failures.
