Two products carry the money market label in the United States, and only one of them is a bank deposit. The distinction determines who holds the money, who bears the risk, and what protection applies.
One is a fund, the other a deposit
A money market deposit account is a bank account. The bank owes the balance, uses the money to fund its own lending, and covers it under federal deposit insurance up to statutory limits.
A money market fund is a registered investment company that pools shareholder money and buys short-term debt instruments. Investors own shares in a portfolio, not a claim on a bank.
That structural difference is why one is regulated as banking and the other under securities law, with different disclosures and oversight.
The fund's portfolio is short-dated by design
Money market funds hold instruments such as Treasury bills, government agency paper, repurchase agreements, and short-term corporate or municipal obligations. Rules limit maturity and credit quality.
Keeping average maturity short keeps the portfolio's value stable, because short instruments move little when rates change. Stability is engineered through the holdings rather than promised.
Categories differ: government funds hold only government and repo exposure, while prime funds add private issuers and accept the additional credit risk that entails.
A stable share price is a convention, not a guarantee
Many funds aim to maintain a constant share value, which makes them convenient for cash management. That value is maintained by the portfolio's characteristics, not by any external backstop.
When a fund's holdings fall enough that the stable value cannot be sustained, the price can move below it. The industry term for that event acknowledges it is possible rather than prohibited.
Reforms following past stress introduced floating values for some institutional categories and mechanisms allowing funds to impose fees or restrict redemptions under severe conditions.
Yields track short-term rates closely
Because holdings mature and are replaced continuously, a fund's yield follows prevailing short-term rates with a short lag. There is no fixed rate to expire or reset.
Bank deposit rates, by contrast, are set by each institution and change at its discretion. Deposits and funds can therefore diverge for extended periods even in identical conditions.
Where the money sits changes what fails
A depositor's risk is that the bank fails, which is the specific event deposit insurance addresses. Coverage is per depositor, per institution, within ownership categories.
A fund investor's risk is that the portfolio loses value or that redemptions are constrained. Securities investor protection covers the failure of a brokerage to return assets, not investment losses.
Reading the product's own disclosure to see which entity owes the balance is the reliable way to tell the two apart.