🎯 In 30 seconds: A money market account is a bank deposit, insured like savings. A money market fund is a mutual fund that holds short-term IOUs. Most aim to stay at $1.00 a share, but none is insured. Funds quote a 7-day yield; banks quote an APY. Government funds are the most conservative kind, and a Treasury-only fund can also cut your state income tax.
Two products, one name
| Feature | Bank money market account | Money market fund |
|---|---|---|
| What it is | A deposit at a bank or credit union | Shares in a mutual fund |
| Protection | FDIC or NCUA up to the limits | No deposit insurance. At a brokerage, SIPC covers missing shares if the firm fails, not a drop in value |
| Price | Your balance never falls | Most aim for $1.00 a share; some float |
| Rate quoted as | APY | 7-day SEC yield |
| Rate changes | When the bank decides | Daily, with short-term market rates |
| Where you find it | Banks and credit unions | Fund companies, and as the cash holding at many brokerages |
| Taxes | Federal and state | Federal; state depends on what the fund holds (below) |
The Investing 101 page on money market accounts and funds has the short version. This page is about choosing between them and comparing the numbers.
The three kinds of funds
Investor.gov sorts money market funds into three groups. Each can also be retail (for individual people) or institutional (for companies, usually with high minimums).
- Government funds hold almost nothing but cash, US government debt and repurchase agreements backed by it. A Treasury-only fund is the strictest version. Government funds aim for a stable $1.00 and are not required to charge the liquidity fees described below. A fund may choose to opt in; its prospectus says whether it has.
- Prime funds also buy short-term company debt, such as commercial paper. The yield is usually a little higher, and so is the credit risk. Retail prime funds aim for $1.00; institutional prime funds let their price float.
- Tax-exempt (municipal) funds hold short-term state and local government debt. The income is generally free of federal tax, which matters most in high brackets.
Reading the 7-day yield
Funds report a standardized 7-day SEC yield: the income the fund earned over the past seven days, after its expenses, scaled up to a yearly rate. Three things follow from that:
- It looks backward. Next month’s yield will follow wherever short-term rates go.
- Fees are already taken out. Do not subtract the expense ratio a second time.
- It leaves out compounding. With dividends reinvested monthly, a steady 4.00% yield grows to about 4.07% over a year. That 4.07% is the figure to set beside a bank’s APY.
Some fund pages also show an “effective” yield, which adds the compounding for you. If a fund company is temporarily covering part of the fund’s costs, the page may show a second, lower yield without that help. The lower one is what you would earn once the help ends.
Worked example: fund or bank account?
Lena, 34, is holding $20,000 for a home purchase next year. She is in the 22% federal bracket for 2026 and her state taxes income at 6%. She compares two choices, using made-up rates:
| Treasury-only fund | Bank money market account | |
|---|---|---|
| Quoted rate | 4.00% 7-day yield | 4.10% APY |
| A year’s income on $20,000, if rates held | about $815 | about $820 |
| Federal tax at 22% | −$179 | −$180 |
| State tax at 6% | $0, if her state exempts it | −$49 |
| Kept | about $636 | about $590 |
The fund keeps about $46 more despite the lower headline rate. In a state with no income tax, the bank account would come out about $4 ahead. Change the rates and the answer can flip, so run your own numbers. The after-tax method is explained on Today’s Rates.
What “breaking the buck” means
A stable-price fund rounds its share value to $1.00. Investor.gov explains that if the true value per share drifts more than half a cent away from $1.00, the fund has to reprice. Dropping below that line is called breaking the buck.
It is rare. The best-known case came in September 2008. The Reserve Primary Fund held debt issued by Lehman Brothers, which had just gone bankrupt, and its shares were repriced to 97 cents. Investors rushed out of prime funds, and the Treasury set up a temporary guarantee program for money funds. That program ended long ago. There is no standing government guarantee today.
The 2023 rule changes
The SEC tightened the rules in July 2023, phasing the changes in through 2024:
- Funds can no longer block withdrawals with temporary “gates.”
- They must hold more cash-like assets: at least 25% that can become cash within a day and 50% within a week.
- Institutional prime and institutional tax-exempt funds must charge a liquidity fee on days when net withdrawals pass 5% of the fund, unless the cost is tiny.
- Any fund other than a government fund must charge a fee when its board decides one is in shareholders’ interest.
For an individual saver, the takeaway is short: a retail government or Treasury-only fund is the version least likely to ever charge you to leave.
Choosing, in order
- Emergency fund and nothing else? An insured savings or money market account is the simplest home. Compare APYs on Today’s Rates.
- Cash sitting at a brokerage? Find out where it sweeps: a bank deposit program or a fund. Check the type and the 7-day yield. Some firms pay little on default cash but let you buy a money market fund instead.
- High state tax? Look at government or Treasury-only funds and their government-income percentage from last year.
- Yields close? Compare expense ratios and minimums, then read the prospectus summary.
- Is a money market fund FDIC-insured? Answer: No. It is an investment. The bank money market account is the insured one.
- Does the 7-day yield already subtract fund expenses? Answer: Yes.
- What does breaking the buck mean? Answer: The share value drifting more than half a cent below $1.00, so the fund has to reprice.
- Which funds must charge a fee when daily withdrawals top 5%? Answer: Institutional prime and institutional tax-exempt funds.