Cash vs. Money Market: What’s the difference?

May 30, 2019
Cash vs. Money Market: What’s the difference?

Chasing interest on your cash is a tough thing.

Several years ago, before the financial crisis of 2008-2009, I held funds in what were called “demand notes.” Demand notes, a type of money market fund, paid a higher interest rate than a typical savings account. However, I was concerned, that there were problems with the company that held the demand notes. I wasn’t sure that my money would be safe if they were to declare bankruptcy, so I pulled the funds out, and instead, found a high-yield savings account, which also paid a decent interest rate. This savings account was FDIC insured.

What does that mean, you ask? Great, I’ll tell you.

FDIC stands for Federal Deposit Insurance Corporation. When you put money into a checking or savings account at a bank, your money is insured up to $250,000 per depositor, per bank, per ownership category. This means, that even if something should happen to the bank, as in, it goes out of business, your money is safe, and you will get it back, up to the $250k limit.

What does per depositor mean?

You are a depositor. Your spouse is a depositor. If you have an account in your name, you qualify for up to $250,000 of FDIC insurance for all of your accounts in your name at one bank. If you have a joint account, each of you would qualify for $250,000 and so you could have up to $500,000 covered at that one bank.

What does per bank mean?

If you have accounts at a different bank, then you qualify for up to $250,000 of additional FDIC insurance at that bank.

What does per ownership mean?

You can qualify for $250,000 in different ways. Retirement accounts count separately from individual or joint accounts. Trust accounts are treated differently also. You can find out more here.

There may be times you want to try to earn a higher interest rate on your cash, without tying it up for too long and not having access to it, like in a Certificate of Deposit with a time limit. In these instances, you may want to consider a money market fund*, which invests in debt instruments that are short-term, like Treasury bills. You can usually get a higher yield, but you give up the protection of FDIC insurance. This means, that there is still a chance that if the company that holds the money market fund goes under, you could lose your investment. Generally speaking, money market funds are still relatively low risk, and the chance of this happening is pretty low.

So, when you are considering where to put your cash, think about whether you are more interested in safety of principal, or interest yield. You also don’t have to choose just one. Having the option of both types of accounts is a way to diversify your cash positions and potentially earn a higher return on investment.


Any opinions are those of Jill Carr and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material and is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

*An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds before investing. The prospectus and summary prospectus contains this and other information about mutual funds. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing.

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