Money market accounts vs. money market funds for finance teams
- What is a money market account?
- What is a money market fund?
- How finance teams use MMAs and MMFs
- How MMAs and MMFs compare side by side
- What to do with large balances
- Liquidity: theory vs. reality
- Yield: what you earn vs. what you manage
- How to structure your short-term cash strategy
- The bottom line
- How Ramp Treasury fits into a short-term cash strategy
Surplus cash has a job to do, but not all of it needs to move at the same speed. Some dollars need to cover payroll next week. Others might sit for months while you plan headcount or infrastructure spend. That’s where money market accounts (MMAs) and money market funds (MMFs) come in.
This guide explains how finance teams manage short-term cash by balancing access, return, and risk to keep operating funds flexible while putting excess cash to work.
TL;DR
Use an MMA when you need:
- Insured balances
- Fast access (same or next day)
- Support for day-to-day payments
Use an MMF when you want:
- Higher yield
- A place for excess cash
- The ability to scale balances beyond deposit insurance limits (with accepted risk)
What is a money market account?
A money market account (MMA) is an interest-earning deposit account at a bank or credit union. It typically earns more than a savings account and supports direct payments (ACH, wire transfers, checks, debit). Most require a minimum balance. MMAs are FDIC- or NCUA-insured up to $250K per depositor, per institution, which makes them a low-risk option for holding operating cash and reserves.
What is a money market fund?
A money market fund (MMF) is an investment fund, not a deposit. It’s offered through brokerages and holds short-term securities like Treasury bills and commercial paper. MMFs typically settle in 1–2 business days and are not insured. MMFs are designed to be relatively stable and liquid, but they are not guaranteed and can lose value.
How finance teams use MMAs and MMFs
Say a SaaS company raises $5M. Their cash might be allocated like this:
- $500K in an MMA for payroll and AP
- $1M in another MMA as a reserve
- $3.5M in an MMF to earn more while planning hires
The allocation depends on how quickly cash needs to move—and what policies guide its use.
Why some teams avoid MMFs
It’s not always about returns. Board policies, covenants, or internal rules may require insured deposits only. Others may avoid the operational lift of brokerage accounts and redemptions.
In these cases, teams accept lower yield in exchange for simplicity, compliance, and control.
Why some teams overuse MMAs
After a fundraise or influx, it’s easy to let excess cash sit in MMAs longer than intended. Setup friction, risk aversion, or shifting priorities delay the move to MMFs.
Over time, this creates a quiet but meaningful yield drag—especially as balances grow.
The goal isn’t to chase perfect returns. It’s to place cash with intention, based on timing, policy, and operational reality.
How MMAs and MMFs compare side by side
The main difference between a money market account and a money market fund comes down to insurance, liquidity, and how returns are generated.
| Feature | Money market account | Money market fund |
|---|---|---|
| Insurance | FDIC or NCUA insured (up to limits) | Not insured |
| Yield | Bank-set rate | Market-based yield |
| Liquidity | Same day or next business day | 1–2 business day settlement |
| Access | ACH, wire, checks, debit, ATM | Brokerage redemption |
| Risk | Very low | Low, but not zero |
| Scale | Limited by insurance caps | No insurance limits |
| Best for | Operating cash and insured reserves | Non-urgent excess cash |
What to do with large balances
Insurance caps don’t scale with cash. FDIC and NCUA coverage tops out at $250,000 per depositor, per institution, per ownership category. Once balances exceed that, teams need a new approach.
The first step usually isn’t taking on more risk—it’s finding ways to extend insurance coverage:
- Spreading funds across multiple banks to stay within coverage limits
- Using reciprocal deposit networks to extend FDIC protection without opening dozens of accounts
- Sweeping excess balances automatically to maintain coverage as cash fluctuates
Allocating to money market funds often comes later in a company’s cash strategy. MMFs can simplify cash concentration and offer higher yield, but they do not carry deposit insurance.
While uncommon, events such as losses, liquidity fees, or redemption gates are possible, particularly during periods of market stress. Episodes like bank runs show how quickly assumptions about liquidity can change.
It’s not about avoiding all risk. It’s about knowing when insurance matters, where yield is worth it, and how much uncertainty your policy allows.
Liquidity: theory vs. reality
Liquidity isn’t just about how fast money can move—it’s about how reliably it moves under pressure.
MMAs sit directly on payment rails like ACH, wire, checks, and debit, making them ideal for obligations like payroll, tax, and vendor payments. Funds are available same day or next business day.
MMFs take longer. Shares must be redeemed through a brokerage, with a typical 1–2 business day settlement before funds hit your operating account.
That works for planned outflows, but becomes risky when timing shifts.
Where liquidity breaks down in practice:
- Payroll or tax deadlines that arrive before redemptions settle
- Holidays or weekends that extend settlement windows
- Manual approvals or extra steps to move funds back onto payment rails
- Unexpected expenses that can’t wait for brokerage settlement
That’s why most teams treat MMFs as conditionally liquid. The cash is available, but only if the process holds.
Yield: what you earn vs. what you manage
Let’s say you hold $50K for a year:
- MMA at 4.00% APY: earns $2,000
- MMF at 4.50% yield, minus 0.20% expense ratio: earns $2,150
That $150 difference scales quickly—but only matters if the funds are truly idle. For money you might need tomorrow, access matters more than yield.
How to structure your short-term cash strategy
One commonly used framework is:
- 0–30 days: Checking or MMA for payments and payroll
- 1–6 months: MMA for accessible, insured reserves
- 6–12 months: MMF for higher yield on non-urgent cash
This type of structure helps align cash placement with timing and policy constraints. Actual allocations depend on each company’s circumstances and are self-directed.
The bottom line
Use MMAs for cash you’ll need soon.
Use MMFs to earn more on what can wait.
The right mix depends on timing, risk policy, and how actively you manage cash. As balances grow and constraints shift, optimizing short-term cash requires more effort and has a greater impact.
How Ramp Treasury fits into a short-term cash strategy
Once operating cash and insured reserves are covered, many finance teams look for a simpler way to manage excess cash without sacrificing visibility or control. Ramp Treasury is designed to support that next step.
Finance teams can use the Ramp Business Account¹ for operating funds and reserves, and the Ramp Investment Account² to allocate excess cash to money market funds when seeking potential yield.³
Ramp Treasury helps finance teams:
- Earn on excess cash⁴
- Keep operating funds and invested cash clearly separated
- Maintain visibility across accounts in one platform
Explore how Ramp Treasury supports a more intentional short-term cash strategy.
¹ Ramp Business Account: Ramp Business Corporation is not a bank. Bank deposit services are provided by First Internet Bank of Indiana, Member FDIC. Deposits may be eligible for pass-through FDIC insurance, subject to applicable limits and conditions.
² Ramp Investment Account: Securities products and brokerage services are provided by Apex Clearing Corporation, an SEC-registered broker-dealer and member FINRA and SIPC. The Investment Account is not a deposit product, is not insured by the FDIC, and may lose value.
³ Investment risk: Investments involve risk, including possible loss of principal. Yield, if any, is earned only on funds invested through the Ramp Investment Account and is variable and subject to change.
⁴ Earnings on the Ramp Business Account: Earnings, if available, are paid by Ramp and are not interest or bank yield. Terms and eligibility apply.
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