While both money market accounts and mutual funds stand out as popular choices among more conservatively minded investors, key differences stem from the function of each product type. Both products combine funds from multiple individuals to create a single investment. However, money market account deposits typically go toward traditionally safer products such as certificates of deposit or loans to government agencies. Because these products are usually stable and associated with official government functions, they are most often insured by the Federal Deposit Insurance Corporation (FDIC).
Mutual funds differ in that they invest in equities and similar stock products. Thus placed within the open market, the principal investment is less secure than that placed in a money market account. The return to the investor is similarly unpredictable. However, the same changeability that characterizes the risk of a mutual fund investment also offers the potential for greater returns than those produced by the typically safer money market account.