Money market account vs. money market fund: What's the difference and which one is right for you?

For folks seeking a low-risk way to increase their savings, both money market accounts and money market funds offer strong appeal.

Despite their similar names, these two savings vehicles are very different. Here's how to decide which account works best for your goals.

A money market account (MMA) is a specific type of savings account available through your bank or credit union. It is insured up to $250,000 by the Federal Deposit Insurance Corporation (banks) or the National Credit Union Administration (credit unions).

At its best, a money market account blends the reliability (and high APYs) of a savings account with the accessibility of a checking account. You can write checks, easily withdraw cash and generally have quick access to your money. This makes MMAs a good place to park cash meant for:

• an emergency fund
• a future vacation
• holiday gifts
• recurring expenses like rent, car payments, etc.

Some of our favorite MMAs include the Ally Bank Money Market Account and the Quontic Bank Money Market Account because of their ATM/debit card features, high APYs and lack of monthly maintenance fees.

Unlike a money market account, which is a deposit account, a money market fund is a type of mutual fund invested in low-risk cash, cash-equivalent or debt-based securities. And while these funds count as some of the safest investments on the market, they're exposed to the whims of the market, and as a result, there's a risk you could lose you money.

So why take a chance, no matter how small, on taking a loss? Because the returns on a money market fund are likely higher than the APY you might earn with any deposit account, including MMAs. This depends on the performance of the market (as well as the APY rates that banks set for their MMAs), but the possibility of earning a higher return makes money market funds a tempting choice.

You can open a fund through a brokerage like Fidelity or Charles Schwab by providing some personal information and then depositing your funds. Getting money from your money market fund is a straightforward process, but it will take longer than withdrawing money from an MMA. Transactions from brokerage accounts typically take a business day or two, and unless you've set up a checking account through your brokerage company, you'll need to transfer funds to your bank account before withdrawing. 

Because it can take a few days to withdraw your money from a money market fund, they aren't the best places to put cash you need immediately, like your emergency savings. And while the returns on a money market fund may outpace most deposit accounts, they usually pale in comparison to other investments, which makes them less than ideal for long-term goals such as retirement.

It's best to talk to a financial advisor about how the low-risk investments of a money market fund fit into your overall investment strategy, rather than seeing it as a replacement for a savings or money market account.

If you're looking for a safe place to stash your savings, an MMA might be your best bet. A money market account typically offers a higher APY than most traditional savings accounts, plus you can easily access your money and you get the financial security of FDIC protection on balances up to $250,000.

The decision to go with a money market fund will have more to do with your attitude toward investing. If you can tolerate some risk and don't anticipate needing to withdraw money in a hurry, then money market funds can grow your cash quicker than most bank accounts. This can make the funds useful for reaching some of the same short-term goals (future, predictable expenses) that MMAs help with — provided you can stomach the potential ups and downs of the market.

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