Money market account (MMA) and money market fund are two stable, secure, and diversified ways that short-term savers can earn higher yields on their savings.
The current interest rate that JPMorgan Chase, the world’s largest commercial bank with $2.7 trillion in assets, pays on its standard savings account is one basis point or 0.01%. If you have $10,000 in your Chase Savings Account, you will earn $10 worth of interest income each year.
As a result of such anemic interest rates on standard savings accounts, short-term savers are looking for ways to earn higher interest income with the lowest volatility. A Money market account and money market fund pay savers higher yields. A money market account is a depository account, while a money market fund is a fixed income mutual fund.
Perilous Times for Savers
Historic low-interest rates are destroying savers, but low-interest rates are only part of the story. More than 50 million Americans lost their jobs in the past 15 weeks, 138,000 died from the coronavirus, and millions of small businesses are on the brink of bankruptcies.
It is a dangerous time for savers, but they can’t keep their money under their mattresses either.
Money market account
MMA is a type of savings account that pays higher interest than a regular standard savings account. For example, the TIAA Bank Yield Pledge Money Market pays a whopping 1.40% with a $500 minimum balance.
In the above example, JPMorgan Chase will pay you 0.01% or $10 each year on a $10,000 balance. TIAA Bank will pay you $140 ($10,000 x 1.40%)
It offers some check-writing options and withdrawals. Unlike a certificate of deposit (CD), you can access your money at any time without a penalty.
Money Market Fund
Money market funds are fixed income mutual funds that invest in debt securities with short maturities and minimal credit risk.
Certificates of deposits (CDs), repurchase agreements, and corporate commercial paper are amongst debt securities that money market funds invest in.
Vanguard Prime Money market, Federated Cash Obligation, and Fidelity Money Market Portfolio are amongst the best-performing money market funds with a 7-day yield 2.38%, 2.39%, and 2.41 percent, respectively.
The Bottom Line
You are not going to get rich by converting your standard savings account to a money market account or by buying money market funds. However, both of them will help your hard-earned dollars keep up with inflation.
