What is the difference between money market account and money market fund?

You know that awkward moment when two things sound identical, sit in the same app, and both claim “high yield,” yet behave nothing alike once you deposit your money. That is the money market split. A money market account lives at a bank or credit union, pays interest, and comes with federal deposit insurance. A money market fund lives at an asset manager or inside your brokerage, pays a quoted fund yield, and aims to hold a steady price while investing in very short-term debt. Both can be a smarter cash home than a basic checking account. They are not interchangeable. The right choice depends on what your cash needs to do, how quickly you need to touch it, and how much insurance or flexibility matters to you.

Let us strip it down to what you would actually experience as a user. Think of a money market account as a savings account with a suit on. You open it at a bank or credit union, you may get a debit card or limited check writing, you see an APY on the account screen, and your balance is insured up to legal limits by FDIC for banks or NCUA for credit unions. The bank sets the rate and can change it at any time. Some banks require a minimum balance or charge monthly fees if you do not meet conditions. Transfers to and from other accounts follow normal banking rails. You can usually link it to pay bills, withdraw cash at ATMs, or move money to checking. Access is familiar and straightforward because it is still a deposit account.

A money market fund is different under the hood. It is a mutual fund that invests in short-term, high quality instruments like Treasury bills, government agency notes, repurchase agreements, and in some cases highly rated corporate paper. It typically tries to keep its net asset value at one dollar per share, but that stability is an objective, not a guarantee. You buy and sell shares through a brokerage or directly from a fund company. Instead of an APY, you will see a seven day yield that reflects the average income the fund generated over the past week. That number can move very quickly when interest rates change. There is no FDIC or NCUA insurance on the fund’s investments, although if you hold the fund in a brokerage account you may have SIPC protection that covers custody issues, not market value.

Safety feels different in practice. With a money market account, the headline safety feature is federal deposit insurance within limits, which protects your principal if the bank fails. With a money market fund, safety comes from the assets it holds and the rules it follows. Government and Treasury funds limit themselves to securities backed by the government. Prime funds may own top tier corporate paper. Funds have strict maturity and quality rules, daily liquidity targets, and managers who watch credit and rate risk. That said, a fund’s share price can theoretically dip below one dollar, which is rare but not impossible. When you choose a fund you are choosing a rule set and a portfolio, not a promise from a deposit insurer.

Yield is the next big fork. Banks decide what to pay on money market accounts, and their APYs sometimes lag rate moves if the bank is hunting for margin. Online banks often pay more than brick and mortar because they run lighter cost structures. Money market funds float with the short end of the bond market. When central banks hike, seven day yields on government and Treasury funds can climb quickly. When rates fall, yields drop just as fast. If your priority is squeezing out the most from policy rate moves with minimal hassle, a fund will often lead. If your priority is keeping things within the insured deposit system, an account may feel safer even if the rate is slightly lower.

Access and speed also split the experience. A money market account can be an everyday cash staging area. Many come with debit access, ATM withdrawals, and bill pay functionality, although some banks cap fee free withdrawals or set internal limits. Transfers are familiar and usually predictable by business day cutoffs. With a money market fund, you place a redemption and the cash arrives in your linked settlement account the same day or the next business day depending on your brokerage and the time you place the order. You generally do not swipe a card directly against a fund. If you are paying rent tomorrow morning, the extra step of redeeming from a fund to checking matters. If you are parking money inside a brokerage while waiting to invest, the fund’s settlement flow is perfect.

Fees show up in different places. Banks may charge monthly maintenance fees on money market accounts if you miss minimums, and they earn spread between what they pay you and what they make on your deposit. Funds publish an expense ratio that comes out of yield before you ever see it. A well run Treasury or government fund might have a very low expense ratio. Prime funds can vary. Always compare two funds by their seven day yields net of expenses, not by brand recognition alone. In apps that default you into a “sweep” program, check whether your idle cash is being sent to partner banks at a lower rate than you could earn in a chosen government fund inside the same brokerage. The user interface can hide real differences in take home yield.

Taxes are a quiet tie breaker. Interest from a bank money market account is taxable as ordinary income at the federal level and usually at the state level. Money market fund income is also ordinary income, but some funds invest exclusively in Treasuries, which can be exempt from state income tax based on your jurisdiction, and municipal money market funds aim to generate income that is exempt from federal income tax and sometimes from state tax if you use a single state fund and live in that state. The yields on muni funds are typically lower than taxable funds, so you would compare after tax results. If you are a student or early career earner in a low tax bracket, chasing tax exempt income usually does not help. If you are in a higher bracket or live in a high tax state, the math can flip.

Let us talk real world use cases. If you are building a first emergency fund and you want zero drama when you need cash, a money market account at a reliable online bank is a clean choice. You get federal insurance within limits, easy transfers to checking, and usually a strong APY without a lot of configuration. If you are an active investor who keeps uninvested cash inside a brokerage and wants to capture short term rates while waiting for opportunities, a government money market fund is the default cash parking lot that pays well and keeps the money in your trading ecosystem. If you are saving for a tax bill three months from now and you want the rate tailwind of short term instruments, a Treasury fund can be appealing, and a chunk of the income may avoid state tax depending on where you live. If you need to write checks directly from the account for rent or tuition, some money market accounts still allow check writing, while most funds do not give you direct payment tools.

There are also hybrid setups that mix the two worlds. Many brokerages use program banks to sweep your idle cash into multiple FDIC insured deposit accounts behind the scenes, then display a single combined balance in your brokerage. This can deliver high insurance coverage across those banks and sometimes a competitive rate, but sweep yields are not always the best available. Some platforms let you override the sweep and pick a specific government money market fund for your core position, which can improve yield at the cost of losing deposit insurance on that cash. The user responsibility is to open Settings and actually read the cash management page, because the default is not always your best option.

Risk is not only about credit. Liquidity rules matter when markets get stressed. Money market funds must maintain daily and weekly liquidity thresholds and hold short maturities. Regulators also allow certain tools during severe stress, such as temporarily imposing redemption gates or fees in some fund categories, which are designed to protect remaining shareholders. These tools are not common, but they exist for a reason. If your mental model of a fund is “always instant cash,” add a note that timing can stretch during market events. On the bank side, you have deposit insurance within limits, but transfers can still be slowed by fraud checks, holiday calendars, or internal review triggers. Every cash vehicle has a small print speed limit. The trick is to match that limit to your needs, not to wish it away.

A quick word on quotes you will see on screen. An APY on a money market account bakes in compounding and is a forward looking annualized rate if the bank does not change its rate. A seven day yield on a money market fund is a backward looking annualized snapshot of what the fund earned over the last week. Both are valid, but they are not the same. If two options look close, watch how those numbers move over a few weeks, and remember that funds typically react faster to policy rate shifts than banks decide to reprice deposits.

Minimums and friction sound boring until they cost you time. Some money market accounts require a few thousand dollars to unlock top tier APYs or to avoid fees. Some money market funds have investment minimums that range from a few hundred dollars to much more, although brokerage “sweep eligible” share classes are often built for small balances. If you are starting with a few hundred dollars and will add small amounts over time, check those entry points before you decide. Also check transfer paths. Moving cash from a bank money market account to a brokerage may take a business day or two. Moving cash from a fund to the brokerage settlement and then into a stock purchase is often same day if placed before cutoff. If your goal is to buy a dip this afternoon, a bank account across town will not help.

Now to the question you actually came for. Money market account vs. money market fund, which one is right for you. The simplest way to decide is to ask three quick questions. First, do you need federal deposit insurance on this balance because it is truly savings that cannot risk any market movement. If yes, lean to a money market account or to a brokerage sweep into FDIC insured program banks, and distribute large balances across institutions to stay within limits. Second, how often will you pay bills or swipe against this money. If the answer is weekly or you want ATM access without extra steps, a money market account keeps life smooth. Third, is maximizing yield and staying close to the rate cycle your main objective while you keep funds in your brokerage to invest. If yes, a government or Treasury money market fund inside your brokerage is the natural fit.

There are edge cases worth calling out. If you are in a high tax bracket and live in a high tax state, a municipal money market fund may win on an after tax basis, but read the fund’s stated investment scope and the tax treatment in your state before you assume. If you are a student or a new grad with variable income, choose predictability over theoretical yield. If you are self employed and run payroll from your own accounts, stick with insured deposit products for the payroll portion of cash, then use a fund for the true float you will not touch for a few weeks. If you are a crypto native who wants fiat dry powder next to your exchange or self custody stack, the fund route inside a regulated brokerage is a cleaner bridge to traditional markets than bouncing between multiple bank apps.

A few red flags deserve attention. Teaser APYs on money market accounts can drop after a promotional period. Some platforms advertise a high sweep rate that only applies up to a low cap, with anything above the cap defaulting to a lower rate. Some brokerages route your cash to affiliated banks that pay noticeably less than a named government fund sitting one tap away. Funds can have share classes with very different expense ratios and investment minimums, so always choose the class that matches your balance and access. Any time you see “instant access” paired with an unusually high quoted yield, pause and find the catch. It might be a cap, a fee, or a requirement to use the platform’s other products.

If you only remember one thing, remember to align the tool with the job your cash needs to do. Cash has jobs. A rent buffer and an emergency fund have to be boring and insured. Trading cash has to be nimble and rate sensitive. Tax savings are about timing and after tax return, not bragging rights on a headline APY. When you decide between these two money markets, you are not choosing an identity. You are choosing a workflow.

Here is a sanity check before you click open or buy. Look up the insurance status or fund type and write it down. Confirm the transfer path and the cutoff time for withdrawals or redemptions on your platform. Compare the published APY or seven day yield over the last month, not just today. Search the account terms for minimums, monthly fees, and limits. If everything still lines up with what your cash needs to do in the next one to six months, you are probably in the right place.

My verdict is simple. If you want federally insured, plug and play savings with easy bill pay and ATM access, go with a solid online money market account and keep the balance under coverage limits. If you want maximum short term yield on idle brokerage cash and you are comfortable with investment fund rules, choose a government or Treasury money market fund as your core position and monitor the yield and expense ratio. Both options can be useful at the same time for different buckets. The smart move is not to pick a side forever. It is to give each dollar a job, then park it in the tool that helps it do that job with the least friction.