Is it better to opt for the savings account over the money market fund?

People are often confused on what to do with stagnant funds of savings. They would not want to invest in a long term scheme as they might have unpredictable need for money or may have a variable income. This requirement negates many of the investment options available. The scheme that pops to mind in such a situation would be a savings account. This account offers many advantages but one arena which a customer doesn’t usually consider is a money market fund. 

Money market fund 

It is a type of mutual fund that is owned by a group of financial institutions .It is a short term investment which matures early compared to other accounts. The minimum period of maturation should be 120 days. They offer an interest on the principle. All Institutions offering a MMF are under the scrutiny of the security and exchange commission (SEC).The MMF aims to keep the net asset value above $1 per share. The funds are fluid and can be accessed by the customer at his discretion. It is one of the safest modes of investment with minimum risk hence the rate of interest is lesser in comparison to other vehicles. 

Savings account 

It is mode of investment where one can deposit their money for safekeeping.  They are offered by almost any bank. The funds are fluid. It offers the rate of interest which is low in comparison to other accounts. 

Money market fund vs. Savings account 

Security 

The savings account is Federal deposit insurance agency (FDIC) approved. The FDIC is a federal agency which usually insures your account up to $250,000. It is an agency that makes sure that your money is safe in a bank. The MMF is not FDIC approved but it is affiliated with the security and exchange commission. All money market funds must strictly adhere to the terms and conditions scribed by the SEC. This makes the MMF also a safe mode of investment. 

Interest rates 

Compared to all vehicles of investments the savings account and the MMF have the least rates of interest. In comparison with each other the MMF stands ahead. 

Fees  

In a savings account the two main fees to consider are the minimum balance and transaction fees. But with an MMF there are a number of fees that one has to consider the main one being the expense ratio 

Considering all the features, the pros and cons must be weighed before investing in either of them.