Individuals have a handful of options for places to keep the funds they wish to keep guarded from the volatility and risk of stock or bond investments. Savings accounts and money market mutual funds are often used to achieve the tasks of safety and liquidity, but each account type has unique characteristics. Conventional savings accounts are offered through a bank or credit union and provide investors with a stated, fixed interest rate. Money market mutual funds are offered through brokerage firms or mutual fund companies and are considered an investment that allows for value fluctuations over time. Money market mutual funds do not provide the same level of protection or predictability as conventional savings accounts.

Savings Accounts

Savings accounts are made available through traditional financial institutions, such as banks or credit unions, and offer a fixed interest rate on deposited funds. A savings account is considered safe because the money held in it is insured through the FDIC or the NCUA up to a limit of $250,000 per account. Account owners can access their deposits as often or as little as they like, but the number of transactions is limited to six per month. Savings accounts are most often used to hold emergency funds or to accumulate short-term savings for a specific financial goal.

Money Market Mutual Funds

Money market mutual funds offered through brokerage firms or mutual fund companies are investments by definition, and therefore, deposits are not protected against loss through Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance. Instead, fund managers aim to keep the net asset value (NAV) of shares at $1 on a consistent basis by investing in short-term securities, such as high-grade commercial paper and treasuries. There are no transaction limits on money market mutual funds, and the interest rate is not guaranteed. Money market mutual funds are often used as a holding place within a brokerage account where funds are deposited before purchasing an investment or after an investment has been sold.

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