There's a good chance you've come across money market accounts when looking where to save your cash. Money market accounts are deposit accounts offered by banks that function similarly to savings accounts.
Money market funds are an entirely different animal, offering investors a low-risk place to grow their money in the stock market. Here's what you need to know about these investment accounts and whether they fit into your financial plan.
What are money market funds?
Money market funds are a type of fixed income mutual fund offering diversification, stability, security and high liquidity. Most notably, they're invested in the market.
Individuals usually consider money market funds as a place to park their cash for the short term because they have low levels of volatility (for being an investment product) and the funds can be easily accessed (generally the next business day).
Federal regulations require that money market funds invest in short-maturity, minimal-credit risk investments. Money market funds tend to earn slightly higher returns than you would get by putting your money in a savings or money market account. Investors can also count on having easy access to these funds if they need cash quickly (or if they simply want to shift that money to an investment that could generate higher returns).
Money market funds are typically categorized based on the type of mutual fund they invest in. The three main types of money market funds are
- government money market funds
- prime money market funds
- municipal money market funds.
These mutual funds can be made up of debt-based and cash equivalent securities, city and government bonds, Treasury bills and CDs — all of which are low-risk investments. While income generated from government and prime money market funds is taxable, income from municipal money market funds can sometimes be tax-exempt.
Money market funds may offer relative stability and security as investments, but they're still some risk that you could lose some of your cash (as with any investment). Keep in mind that your money isn't protected like it traditionally is in a bank with FDIC insurance.
How to invest in a money market fund?
You can start investing in a money market fund through the big-name brokers. Setting up a brokerage account takes around 15 minutes and just requires you to input your typical personal information and fund the account.
Fidelity offers the three types of money market funds we outlined above, and you can use the platform's Mutual Fund Evaluator to compare all your options. There are many money market funds at Fidelity that don't require a minimum investment.
Fidelity Investments
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go® account, but minimum $10 balance according to the investment strategy chosen
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)
Bonus
Find special offers here
Investment vehicles
Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®
Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
Charles Schwab also offers government, prime and municipal money market funds —many with zero minimum investment required.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
No matter where you end up investing in a money market fund, know that you'll likely have to pay expense ratio fees (aka a management fee), which range from about 0.08% to 0.40%.
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Bottom line
Money market funds can be a solid choice for those who want a safer place to invest while earning a return better than they'd get with most deposit accounts. Just make sure you understand the risks inherent with any investment before including money market funds in your financial planning.
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