Money Market Fund vs. Traditional Savings Accounts

If an individual was thinking about investing in a money market fund, it is likely that they will find a number of suitable savings account options to suit them as well. There are various advantages and disadvantages to both types of accounts, and an investor should carefully consider these prior to making their decision.

Possibly the greatest difference between these two types of investments is where you can actually get them from. A money market fund will typically involve an investor working directly with a mutual fund company or a financial broker. A money market fund can best be described as one of the mutual funds that are generally offered in a family of funds. On the other hand a savings account will typically involve an investor working with a bank. It is actually possible to open a traditional savings account with a traditional high street bank or even online.

It must be said that money market funds tend to have higher yields than a standard savings account, although it is important to realize that they are not FDIC insured. With that said, it is also highly unlikely that an investor will ever lose money in a money market fund. However, in order to ensure that investor does not lose their money, they should seek this type of investment from a well-established national bank or investment company.

Investing in a money market fund will not involve an individual investing in stocks, but rather in a short-term debt instrument that is purchased on what is known as the “money market”. However, the money market isn’t actually a particular place, but simply how the US government, banks, corporations, and any other large institutions manage their short-term cash needs, i.e. loans.

The vast majority of investors will want to invest their funds into something that they consider safe, and it must be said that money market funds are considered a safe investment, as money is typically invested in securities that aren’t particularly volatile. However, a traditional savings account will always be a far safer place to invest. As a traditional savings account involves investing money with a bank, this will mean that the account will be insured by the FDIC. Therefore, if the bank was to go out of business, the FDIC is able to step in and reimburse an investor up to $100,000.

Another important consideration is the returns that someone will get from their investment. A savings account, especially in the current market, will offer an extremely low annual return, and in most cases an investor will not currently get a rate that is much better than 1%. However, many banks will also offer high yield savings accounts, but even so the interest rates offered are still not that fantastic. A money market mutual fund will typically offer an investor a far greater annual return on their money. In fact, investors should be able to earn at least 1% to 2% more on an annual basis by simply investing into a money market fund.

Money market funds and traditional savings accounts also differ from each other in the accessibility that they offer to the funds. Most money market funds will generally have some type of provision in place to allow an investor to easily access their money. This may be in the form of a check book which will allow an investor to simply write checks against the money that they currently have invested in a mutual fund. However, it is important to note that there will usually be a minimum amount for the check, such as $500 to $1000.

A traditional savings account will typically allow an investor to transfer the money directly into their checking account in order to access it. Many banks will also allow an investor to make a cash withdrawal at the bank or they may even provide a card that can be used as an ATM.

Another option that investors should be aware of is money market accounts, although they should not be confused with money market funds. A money market savings account is typically insured by the FDIC and will offer higher interest rates than a traditional savings account. However, it will generally require a higher balance and will often limit the number of withdrawals that a person can make.

Traditional savings accounts have typically offered a risk adverse customer an ideal place to invest their money. However, as interest rates have been steadily declining for a number of years, bank customers have been looking for alternative methods to invest their money. One of the most popular alternatives is money market funds, and although they are considered to be a fairly safe investment, an investor should always be wary that they are not insured by the FDIC.

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