Money market (MM) accounts comprise two types: MM deposit accounts and MM mutual fund accounts. MM deposit accounts are a type of savings bank account that generates interest on the funds. A MM mutual fund account is an investment that pools the funds and invests them in low-risk, short-term debt securities, such as government treasury bills and commercial papers.
Rate of Return
Both types of money market accounts tend to yield higher rates of return than conventional savings accounts. The favorable interest yield of these accounts compensates for the restrictions typically placed on them, such as minimum balance requirements and withdrawal limits.
Rate Definitions
Bankrate.com provides a free comparison of the interest yields of local and national money market deposit accounts. Annual percentage rate (APR) is the rate at which an account earns interest over the course of one year without compounding, while annual percentage yield (APY) is the rate at which an account earns interest over the course of the year including any compounded interest. More frequent compounding periods, such as monthly versus quarterly, lead to higher APYs and more interest earned.
Account Restrictions
In return for higher interest rates, money market customers have to abide by certain restrictions that typically include minimum account balances and maximum number of withdrawals within a time period. Banks commonly offer a tiered system of interest yields to encourage customers to keep higher account balances.
Management Fees
As a type of investment, money market mutual funds are professionally managed and invested. While these accounts tend to yield a higher rate of return than ordinary savings accounts, they also charge management fees that savings accounts do not. The Securities and Exchange Commission restricts money market mutual funds to debt securities with maturities of less than 13 months. The average maturity period of the debt securities held in the account must be under 90 days.
Risk Profile
Both types of MM accounts offer a means to earn interest on your money at relatively low risk. Similar to conventional savings accounts, MM deposit accounts have interest rates that are published by the bank and adjusted periodically. The United States Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000 per customer in each bank. MM mutual funds have rates of return that fluctuate according to the performance of the investments and market conditions. As a type of investment, MM mutual fund accounts are not FDIC insured.
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