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As interest rates continue to decline, many savers are looking for a safe place to earn competitive interest on their cash. Two options that fit the bill: money market accounts and money market funds.

However, despite their similar names, they operate in different ways. In this breakdown of money market accounts vs. money market funds, learn how these savings vehicles differ in terms of returns, account minimums, benefits, and risks.

A money market account (MMA) is a type of deposit account available from banks and credit unions. It’s similar to a savings account, but often comes with a few added features, such as check-writing privileges and/or a debit card.

Like other deposit accounts, MMAs are typically insured up to $250,000 per depositor, per institution, per ownership category. This makes them a low-risk option for storing cash.

Additionally, money market accounts often pay a higher rate of interest than typical savings or checking accounts. Here’s a look at the average rates on these common deposit accounts, according to the FDIC:

Interest checking: 0.07%

Savings account: 0.39%

Money market account: 0.56%

As you can see, money market accounts have a higher average rate than checking and savings accounts. That said, these are just averages; the best money market account rates are closer to 3%-4%.

Though the names are similar, money market funds are quite different from money market accounts. Money market funds are not deposit accounts; they're a type of mutual fund, which is an investment fund that pools money from multiple investors to invest in a basket of securities, such as stocks or bonds.

Money market funds invest in short-term, liquid securities, such as T-bills, commercial paper (unsecured corporate debt), and certificates of deposit (CDs). To invest in a money market fund, you must have an eligible investment account with an investment firm or online broker.

Money market funds aim to maintain a stable net asset value (NAV), usually $1 per share, while paying out income in the form of dividends. While they are considered relatively low risk, they are not risk-free. In rare cases, a fund can “break the buck,” meaning its value falls below $1 per share.

As a type of investment, money market funds are protected by Securities Investor Protection Corporation (SIPC), a government corporation that protects investors who have money with financially troubled brokerages. SIPC protects up to $500,000 ($250,000 maximum for cash).

When deciding between a money market fund vs. money market account, understanding the key factors that differentiate them can help you choose what to do with your excess cash.

Availability: Money market accounts can be opened through a bank or credit union, while money market funds are only available from investment firms. To invest in a money market fund, you'll need a brokerage or retirement account.

Insurance: Money market accounts are insured by the FDIC or NCUA for up to $250,000 per depositor, per institution, which protects your principal. Money market funds are protected as securities by SIPC.

Returns: Money market accounts earn variable interest, and rates are set by individual financial institutions. Money market funds generate returns by paying dividends based on the performance of the underlying investments they hold.

Risk: With a money market account, interest rates may fluctuate, but your account won't lose value. By contrast, money market funds have some risk; you could lose money if market conditions change.

Minimum balance: Money market accounts may require a minimum balance to earn the highest interest rate or to avoid monthly fees. Money market funds often have low or no minimum investment requirements, although this can vary by provider.

Fees: Money market accounts often come with monthly maintenance fees, which may be waived if you meet certain balance requirements. Money market funds involve expense ratios, which are a percentage of the assets invested that go toward the investment firm's administrative and management expenses.

Taxes: Some money market funds are tax-exempt, such as those made up of municipal bonds. But the interest you earn in a money market account is taxable as income.

Best for: A money market account is best suited for emergency savings or cash you want to keep safe and readily accessible. A money market fund is better suited for cash management within an investment portfolio or for temporarily holding funds between investments.

Whether a money market fund is better than a money market account depends on your goals and risk tolerance. Money market funds are relatively low-risk investments, but there is some risk of losing money. However, they usually provide higher returns than money market accounts and usually have lower account minimums.

If you can’t stomach taking on any risk, a money market account could be a good alternative. You'll earn a higher APY than you'd get with a traditional savings account without the risk of market changes affecting your account value.

Generally, money market accounts can’t lose money since they are not tied to the performance of the stock market. The exception is if you incur fees, which can reduce your balance.

Money market funds, on the other hand, can lose money if the underlying securities in the fund drop in value. That said, they are considered very low-risk investments.

Money market accounts can be useful account options if you have excess cash you need for a short-term goal, such as an upcoming major purchase or dream vacation. Money market accounts usually have higher APYs than savings accounts and come with check-writing capabilities and/or a debit card.

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