Money Market Accounts Vs Money Market Mutual Funds
There is a big difference between a money market account and a money market mutual fund. Do you know the difference?
A money market account is a ‘souped-up’ saving account offered by a bank or credit union. It typically has a high minimum balance requirements ($1,000 to $2,500). Account balances earn a higher rate of interest than a basic savings account. Monthly withdraws are limited to 3-6 times per month. Most banks and credit unions allow check writing but check writing is limited to three checks per month. Money market accounts do qualify for deposit insurance from FDIC or NCUA.
A money market mutual fund is a mutual fund. A money market mutual fund can be purchased through an investment broker or some (not all) banks and credit unions. The value of this mutual fund can fluctuate in value like any other mutual fund. Money market mutual funds, prior to the collapse of Lehman Brothers in September 2008, were viewed as relatively low risk and highly liquid (easily converted to cash) investments. Money market mutual funds invest in “money market” investment instruments. Money market investments are short-term liquid investments such as commercial paper, banker acceptances, treasury bills, repurchase agreements and certificates of deposit. After the collapse of Lehman Brothers, the ‘money market’ froze up and became very illiquid. The value of money market mutual funds did take a huge hit because of the situation. The ‘money market’ and money market mutual funds are slowly returning to some sense of normalcy.
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