Many Confuse Money Market Accounts to Money Market Funds

A money market account is a type of savings account that is available from banks. These accounts pay a higher interest rate than regular savings accounts. The individual banks set the annual yield, or interest rate that they can adjust daily.

Deposits into money market accounts at banks are insured through the FDIC. They are considered very safe investments

Money market funds are not bank deposit accounts. The yield on money market funds is tied to the market for short-term debt. This short-term debt can comprise of Treasury Bonds and commercial papers.

Since money market funds are not back deposits, they are not FDIC insured. They do have the responsibility of trying to maintain a stable price or net asset value of at least $1 per share.

Money market funds are considered more risky than money market accounts, but they are still considered fairly safe investments. Up until the 2008 Lehman Brothers failure, no retail investor had ever lost any money in a money market fund.

As with most things in the investment world, the higher risk investments generally offer a higher return. This is typically true with the money market funds usually returning a higher yield. But at the current time, the money market accounts are actually yielding a higher return. It is uncertain how much longer the safer money market accounts will continue to out perform their riskier counter-part.

Through smart investing, an investor can earn money off both types of financial accounts. Generally, both accounts are considered to be safe in normal economic conditions. Each investor will need to consider the current yield rate and the risks factor that is the difference between money market accounts ad money market funds as they are considering their investment options.

Written by Denise Clay
Hickory, NC
Exclusive to HULIQ