Compare Money Market Funds
and Bank Accounts

Big Difference in Fees and Rates - Investors can have many types of money market accounts, and many types of financial institutions including banks, credit unions, brokerages, and mutual funds offer money market accounts. All types of money market accounts reflect the returns available for investors in short-term, high-quality debt obligations such as certificates of deposit, Treasury bills, commercial paper, banker's acceptances, repurchase agreements, and Eurodollar certificates. Money market accounts only invest in short-term and high-quality securities, and the risk assumed by investors is very low. All money market portfolio managers must select their investments from this finite pool of securities, and the predictability of these securities is very high. So, when we compare money market account performance across money market funds and bank money market accounts, what is the difference in yields?

According to iMoneynet.com, the average taxable money market mutual fund produced a seven-day net simple yield of 4.40% as of May 30, 2006. In contrast, the average bank money market account offered a yield of only 3.09% according to data supplied by Bankrate.com. Compare money market accounts locally, and they may be even lower. Of course, there are many exceptions to these averages, and some bank money market accounts or savings accounts are very competitive. For instance, Amboy Direct, EmigrantDirect and HSBCdirect all offered savings accounts with an APY above 4.5% on June 6, 2006. Investors do themselves a disservice if they do not compare money market accounts and funds together. While funds may offer higher returns, on average, money market bank accounts may have superior convenience features. Investors need to consider all their options and costs associated with those options.

Some websites compare money market fund investments to picking stocks, but this is misleading because money market investments are very safe ventures. A money market account investor doesn't need to understand the buying and selling of treasury bills or commercial paper or even the valuation of these securities in order to take advantage of the safe and secure returns offered by these accounts because fund and account managers have secure and reliable processes established to select and acquire these securities. In addition, by selecting a bank account or a mutual fund account, an investor will diversify their investment among dozens or hundreds of short-term money market investments. Consequently, while the value of stocks may rise and fall, the value of money market accounts maintain steady valuations.

Disclaimer - The information on this site is believed to be accurate, but no warranty is made regarding rates, terms or features of any financial product. Carefully read the prospectus for any product before investing.  The best money market rates, accounts, and funds are determined by individual needs, and tax, financial and legal advisors should be consulted before making an investment.