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Money Market Funds

What are Money Market Accounts vs. Money Market Funds? Money Market Accounts are generally much the same as a traditional savings account from a bank or credit union. Money Market Funds are quite different. Money Market Funds are usually debt investments where the money is loaned out and charged a higher interest rate to the borrower, which is spread across the fund participants. One thing different about Money Market Funds is that these are not insured by the U.S. Government. Instead, the SEC. regulates these. One of the regulatory mandates of Money Market Funds is that the average maturity date within any Money Market Fund is 90 days. This is intended to limit the volatility of the Fund for the participants.

The primary difference between Money Market Accounts and Money Market Funds is in the risk involved. Traditionally, Money Market Accounts are treated as regular savings accounts and are backed by the FDIC just as any other bank account. The SEC (Security Exchange Commission), on the other hand, as we have already pointed out regulates Money Market Funds, but do not offer any insurance backing. This makes these type investments much more risky than those with FDIC insurance. That should be the primary concern of an investor. Both type of investments offer a higher than average return on investment or R.O.I. Yet, many investors prefer having their accounts backed by the United States government as a general comfort in investing.

If you are a do-it-yourself investor, you might prefer the lower risk options until you build your nest egg or until you have an increased confidence level in personal investing. Either way, any investor is encouraged to practice due diligence and be certain to read the fine print before committing your hard earned money into an investment plan.