Money market accounts and money market funds, offered by banks and mutual funds respectively, resemble checking accounts in that they offer the highest degree of liquidity. For example, you can write checks against your account, withdraw cash, or have the money transferred between accounts the same business day.
But money market accounts and funds pay higher interest rates than interest-bearing checking accounts or regular savings accounts because they typically require higher minimum deposits.
Money market accounts are available at most local, national, and online banks. Most accounts have check-writing privileges, though there's often a limit on the number of checks you may write per month without incurring a fee. Each check may have to be written for a minimum amount set by the bank. And you may be charged a fee or lose some interest if your account balance falls below the bank's minimum.
Money market funds are available from most mutual fund companies, either as taxable or tax-free accounts. All money market funds make very short-term investments to maintain their value at $1 a share. Taxable funds buy various types of corporate and government debt, while tax-free funds buy municipal debt.
Most money market funds let investors write an unlimited number of checks against their accounts each month, though each check must be for a minimum amount — often $500. While you don't pay a sales charge to buy a money market fund, there may be a fee if your account value drops below a certain minimum.
Type
Access
Maturity
Insured
Money market mutual fund
Easy access and fast transfers
None
SIPC insured but can lose money
Bank money market account
Instant access
None
FDIC insured
With the exception of Treasury bills, which are exempt from state and local taxes, the interest you earn on cash equivalents is almost always taxable at your regular income tax rates unless you own the investment within a tax-deferred or tax-exempt retirement or education savings account.
