4 key differences between money market funds and high-yield savings accounts

Key Points

• Consumers looking to earn high interest on their savings while retaining easy access to their cash are often torn between high-yield savings accounts and money market funds.
• “They’re both very, very safe and offer liquidity,” said Greg McBride, chief financial analyst at Bankrate.
• There are, however, key differences in terms of risk, taxes, yields and more.

When it comes to https://www.cnbc.com/2023/08/18/4-best-places-for-cash-as-the-federal-reserve-weighs-a-policy-shift.html earning a decent yield on their savings, consumers may wonder: Should I choose a money market fund or https://www.cnbc.com/2023/04/03/3-ways-to-make-sure-youre-earning-competitive-interest-on-your-cash.html a high-yield savings account?

The purpose of each is similar. They generally serve as repositories for emergency funds or savings earmarked for the short term, perhaps to buy a car, home or vacation, said Kamila Elliott, a certified financial planner and CEO of Collective Wealth Partners, based in Atlanta.

That’s because money market funds and high-yield savings accounts are stable and allow for easy access — two essential traits when saving money you can’t afford to lose and might need in a pinch, said Elliott, a member of the CNBC Advisor Council.

“They’re both very, very safe and offer liquidity,” said Greg McBride, chief financial analyst at Bankrate.

Plus, their yields are often higher than those of a traditional bank savings account. They’ve risen sharply over the past year and a half as the Federal Reserve has increased its benchmark interest rate to tame inflation. Many are paying yields above 4% and 5% after years of sitting near rock bottom.

By comparison, traditional savings accounts pay a paltry 0.54%, on average, as of Aug. 28, according to Bankrate.

And consumers don’t necessarily have to make an either-or choice.

“Plenty of investors have both,” McBride said.

Here are some key differences.

Source:

Iacurci, G. (2023, September 6). Money market funds vs. high-yield savings accounts: 4 key differences. CNBC.