Money Market Accounts vs. Money-Market Funds

In today’s shifting economy, it is crucial to evaluate the pros and cons of any investment for clients. Making clients aware of these can help emphasize positive selling points while bring an awareness of risks involved.

For some investors, safety is more important than high returns. If that’s the case, money market accounts are a preferable low risk option. However, if a greater return of investment is desired in a short time, money market funds are a viable next step.

Pros of Money Market Accounts

  • pay higher interest rates than checking accounts
  • functions as a savings account
  • low risk
  • yields a fair annual percentage yield (APY)
  • typically FDIC insured

Cons of Money Market Accounts

  • minimum deposit levels are higher than other bank accounts
  • transfers are limited
  • fees are charged if account falls below minimum-balance required
  • rates aren’t guaranteed and change along with market rates

Pros of Money-Market Funds

  • market value of shares don’t fluctuate
  • shares redeemable any time by mail or telephone
  • don’t need a lot of money or time to make this investment worthwhile
  • the diversification of the investment in a professionally managed portfolio of stocks, bonds or other securities cushions the impact of wide price swings on the investor
  • typically pay a monthly dividend which can be reinvested to increase the pace of financial growth

Cons of Money-Market Funds

  • checks written from fund carry a high minimum
  • money market fund rates are variable
  • long term average returns on money market funds tends to be less than long term average returns on riskier investments due to inflation