The SEC's investor.gov defines a money market fund as a type of mutual fund that invests in liquid, short-term debt securities, cash and cash equivalents. Such funds have relatively low risk compared with other mutual funds and most other investments, but historically lower returns, and they pay dividends that generally reflect short-term interest rates. Many investors use them to hold cash or as an alternative to bank savings.
Money market fund vs money market account
The names are similar, the products are not:
| Money market fund | Money market account | |
|---|---|---|
| Legal form | Mutual fund (investment) | Bank or credit union deposit |
| Sold through | Brokerages, fund companies | Banks, credit unions |
| Income | Dividends | Interest at a stated APY |
| FDIC/NCUA insurance | No | Yes, within limits |
The FDIC lists mutual funds among the products deposit insurance does not cover, even when they are bought through an FDIC-insured bank. The CFPB notes that brokerage accounts holding a money market fund are protected by SIPC rather than by the FDIC or NCUA.
Example
A fund yielding 4.00% on a $10,000 holding pays about $400 of dividends over a year if its yield stays at 4.00%; the yield moves with short-term rates, so the actual amount varies. The money market account vs savings account guide explains when a deposit account is the safer place for cash.