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Commercial banks provide financial services for small and large businesses, including checking and savings accounts, loans, lines of credit, letters of credit, underwriting, and payment processing. These services enable businesses to operate in domestic and international markets. What’s more, financing from commercial banks may help businesses grow, which could potentially help drive the domestic economy.

What Is Commercial Banking: A Definition

Commercial banking involves financial institutions that are dedicated to serving businesses. This differs from retail banking, which provides personal banking services to individuals, such as checking and savings accounts.

Typically, a commercial bank offers businesses everything from deposit accounts, loans, and lines of credit to merchant services, payment processing, international trade services, and more. In these ways, a commercial bank can be a vital partner in helping a business succeed and grow.

While commercial banks offer a suite of services for medium and large businesses, small and new business owners can also take advantage of their offerings. Sometimes, people starting an enterprise use their personal accounts for banking. However, it is typically better to seek out commercial banking and open separate accounts for business vs. personal finances. This simplifies record keeping and the payment of taxes, and it also helps keep these two realms separate in case of any legal action.

How Commercial Banking Works

Commercial banks serve small- to large-sized businesses. You may be familiar with their names, as many of them also have retail banking divisions. Three examples of commercial banks in the United States are JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. All are regulated by the United States Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).

One very important function of commercial banks: providing financing to businesses. Before a commercial bank extends a loan to a business, it assesses the creditworthiness of the borrower by looking at its assets, profitability, and size.

In addition, commercial banks provide an array of services, supporting businesses with transfers from one account to another, lines of credit, lockbox services, payment processing, and foreign exchange services. Here is a closer look at what a commercial bank may offer:

Deposit Accounts

Commercial bank deposit accounts function like retail bank checking and savings accounts. They enable businesses to pay suppliers and employees by holding cash and, in some cases, account holders may earn interest on the balance.

There are three main types of deposit accounts: demand, fixed, and savings.

•   Account holders can use demand deposits or current account deposits for business transactions. They typically do not earn interest and are subject to service charges.

•   The bank holds fixed deposits for a specific term. Deposits likely earn interest, and the account holder can make withdrawals.

•   Savings deposits function as both fixed deposit and current accounts. Depositors can withdraw cash from these accounts, but the amount may be limited. Savings accounts earn interest but probably less than a fixed deposit.

Loans

Businesses need capital to thrive. Whether hiring staff, renting office or manufacturing space, or buying materials and supplies, operating a business and growing it takes cash. Commercial banks extend business loans vs. personal loans and charge interest on the loans. That’s one of the key income streams for banks. The bank likely turns a profit on lending, and the business gets the funds it needs to launch its enterprise or to expand or buy real estate or new equipment.

Lines of Credit

Commercial banks usually provide businesses with lines of credit. A line of credit is short-term funding that can help a company manage its obligations while it waits for cash flow to improve. For example, a company may have to wait for receivables’ payment in order to meet this month’s payroll. A line of credit can help bridge that gap.

Letters of Credit

A business may need to request a letter of credit from a commercial bank to show creditworthiness and to secure goods or services from an overseas trading partner. A letter of credit can serve as a guarantee from the issuing bank of payment for the goods once the letter’s requirements are met. The requirements might include the shipping date and the address the goods should be shipped to. In this way, a commercial bank can smooth international trade and help its clients’ business grow.

Lockbox Services

Lockboxes facilitate faster payments for businesses. Bank customers can send payments to a post office box near the bank, and the bank deposits the payments or funds to the customer’s account. This helps expedite the receipt of deposits and subsequent payments from the client to its providers. It can be a helpful cash flow tool for commercial enterprises.

Payment and Transaction Processing

Commercial banks typically facilitate the payments that businesses receive from their customers through electronic checks, paper checks, and credit card payments. Commercial banks may also provide services such as chargeback management fraud protection. All of these services can help keep a business humming along.

Foreign Exchange

Cross-border payments are complex because of exchange rates and the fact that each country has a different legal system. Commercial banks can provide foreign exchange services so that a company can do business overseas with a minimum of time and effort. This can streamline operations for a business enterprise so they can focus their attention on other activities.

The Significance of Commercial Banks

Commercial banks play a vital role in the financial life of the U.S. They help support the country’s economy by providing capital and services to businesses. By providing loans, they likely allow businesses to increase production and potentially expand, which may, in turn, boost the economy, lower unemployment, and encourage consumer spending. In addition, commercial banks support cross-border trade and transactions (say, by issuing revolving letters of credit) so that businesses can operate in international markets.

Commercial Banking vs Investment Banking

When considering the definition of commercial banking, it can be helpful to compare and contrast it to other kinds of banking. For instance, investment banking is a subset of banking that is focused on creating capital for companies, governments, and other organizations.

While some financial institutions may combine commercial and investment banking, because of the Gramm-Leach-Bliley Act of 1999, the two kinds of banking serve different markets. Here’s more detail of what investment banks do:

•   Underwriting

•   Overseeing mergers and acquisitions and initial public offerings (IPOs)

•   Facilitating reorganizations

•   Aiding in the sale of securities

•   Brokering trades for institutions and private investors

Commercial Banks vs Retail Banks

Another important distinction is how commercial banks differ from retail ones. Some banks will offer both sets of services, but here’s what retail banks typically offer in terms of personal banking services:

•   Savings accounts and checking accounts (you can often open these bank accounts online)

•   Mortgages

•   Personal loans

•   Debit cards

•   Certificates of deposit (CDs)

There are also alternatives to traditional banking that can assist with personal finance transactions.

Examples of Commercial Banks

It can be helpful to have specific examples of commercial banks to better understand what they do and how they work. There are three types of commercial banks: public sector banks, private banks, and foreign banks.

•   A public sector bank is one where the government owns a major share. Public banks provide funding for projects that benefit the local public and community, which could include infrastructure projects or affordable housing. The Bank of North Dakota (BND) is the only active public bank in the United States.

•   Most of the banks in the United States are private banks run by individuals or limited partners. Examples are JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo.

•   A foreign bank is any bank headquartered in another country but doing business in the United States. Two examples are Barclays Bank PLC, headquartered in the United Kingdom, and the Royal Bank of Canada (RBC).

Benefits of a Commercial Bank Account

There are several reasons for a business to consider opening a commercial bank account.

•   Clients are likely to feel more confident making payments for services rendered to a business rather than an individual. Simply put, it’s more professional and may be perceived as more trustworthy.

•   Having separate bank accounts for business and personal transactions can simplify accounting and taxes (business expenses are more easily deducted).

•   If a business owner faces legal or financial challenges with their business activity, their personal liability could be limited and protected.

•   A business can apply for business loans from a commercial bank and finance expansion or costly equipment purchases with favorable lending terms.

•   Business accounts are FDIC-insured in the event the bank fails.

Is My Bank a Commercial Bank?

If your bank provides services to businesses, such as checking accounts, financing, lines of credit, and international trade services, it is likely a commercial bank. A retail bank, on the other hand, will provide services to individuals (joint vs. separate accounts, debit cards, personal loans, and more) and could be a department within a commercial bank.

The Takeaway

Commercial banking differs from retail banking in terms of the clientele it serves. Retail banks provide checking and savings accounts, loans, and other services to individuals to manage their day-to-day finances. Commercial banks help businesses launch, operate, and potentially grow with services like deposit accounts, loans, lines of credit, payment services, and more.

If you are hunting for personal banking services, explore what different retail banks have to offer, such as direct deposit, low or no account fees, and mobile banking, to find the best option for your financial needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is the difference between commercial banking and retail banking?

Retail and commercial banking serve different clients. Retail banking provides checking and savings accounts, financing, lines of credit, credit cards, and other services to individuals. Commercial banking usually provides checking and savings accounts, financing, underwriting, letters of credit, lines of credit, and other functions to businesses.

Is my money safe in a commercial bank?

Your money is essentially as safe in a commercial bank as it can be. It is generally protected from loss due to bank failure by federal insurance up to $250,000.

What role does a commercial bank play in the economy?

Commercial banks may support the economy by providing capital and services to organizations. These, in turn, could stimulate the economy by doing business, growing, and employing more workers. Commercial banks may also facilitate cross-border payments so that businesses can move into international markets.

Photo credit: iStock/Passakorn Prothien

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1927483-V1

With the CD barbell strategy, you invest in short-term and long-term certificates of deposit, and don’t invest any of your money in medium-term CDs — a strategy that may help maximize income and minimize risk.

CDs have different terms, and generally the longer the term, the higher the interest rate. When you invest money in a longer-term CD, you can take advantage of their higher rates. The downside with a long-term CD is that your money is tied up for a longer period of time. You have more liquidity with a short-term CD, but you will typically earn a lower return.

By splitting your money between short-term and long-term CDs, the idea is to capture the best of both worlds. Find out if a barbell CD strategy makes sense for you.

What Is a Certificate of Deposit (CD)?

A certificate of deposit is a time deposit account that offers a guaranteed return that’s typically higher than a savings or money market account.

With a CD, you invest a lump sum upfront (called the principal). Your money earns a specified interest rate for a specific period of time (known as the term). Most CDs are insured against loss by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Association) for up to $250,000. Certificates of deposit are considered a type of cash equivalent.

CDs typically pay a higher rate than standard deposit accounts because the account holder agrees not to withdraw the funds until the CD matures. If you deposit $5,000 in a 5-year CD, you cannot withdraw the $5,000 (or the interest that you’ve earned) without incurring an early withdrawal penalty until the end of the five years.

If you do need access to your money before the end of the term, you might consider a certificate of deposit loan, where the bank gives you a loan with the money in the CD serving as collateral.

What Is the Certificate of Deposit (CD) Barbell Strategy?

The longer the term of the CD, the higher the interest rate you’ll typically earn, but the longer your money will be tied up. The CD barbell strategy is one way that you can attempt to get the benefits of both long- and short-term CDs. By dividing your money between these two types of CDs, you will blend the higher interest rates from long-term CDs with the accessibility of short-term certificates of deposit.

In addition to the CD barbell strategy, there are a variety of different strategies for investing in CDs, including the bullet strategy, which involves buying several CDs that mature at about the same time and the CD ladder strategy, which consists of opening multiple CDs of different term lengths.

So if you’re wondering where to store short term savings, you have several different options to choose from.

Real Life Example of the CD Barbell Strategy

If you want to start investing in CDs and are interested in learning more about the CD barbell strategy, here is one example of how it could work. Say you have $10,000 that you want to invest using the CD barbell strategy.

•   You invest $5,000 in a 3-month CD earning 1.50%

•   You invest $5,000 in a 5-year CD earning 5.35%

Your total return would be 3.42% (the average of 1.50% and 5.35%). That’s less than you would get if you put all of your money in a long-term CD, but more than if you put it all in a short-term CD. Depending on your financial goals, you can adjust the terms of your CDs and the amount you put in each half of the barbell.

With the CD barbell strategy, when your short-term CD expires, you could choose to take the proceeds and reinvest it in a new short-term CD.

Benefits of the CD Barbell Strategy

Here are a few of the benefits of the CD barbell strategy:

Higher Returns Than Investing Only in Short-Term CDs

Because half of your money is invested in long-term CDs that pay a higher return, you’ll get a higher return than if you invested only in short-term CDs. This can make it a viable investment strategy if you need access to some of your money but also want higher returns.

More Liquidity Than Investing Only in Long-Term CDs

Another benefit of the CD barbell strategy is that you have easier access to your money than if you invested only in long-term CDs. Half of your money is in short-term CDs, which means that if you need access to your money after a few months, you can withdraw the money in your short-term CD when it matures without penalty.

Drawbacks of the CD Barbell Strategy

Here are a few of the drawbacks of the CD barbell strategy:

Excludes Medium-Term CDs

The barbell CD strategy focuses solely on short-term and long-term CDs, excluding medium-term CDs. Depending on your financial situation, you might find it worthwhile to include medium-term CDs as part of your investment strategy.

Ties Up Some of Your Money

When you invest in a long-term CD that won’t mature for several years, you won’t have penalty-free access to that money until the end of the CD’s term. While long-term CDs do typically come with higher returns than CDs with shorter terms, you need to make sure that you won’t have a need for that money until the CD matures.

Barbell CD Strategy vs CD Laddering

When Should I Use a Certificate of Deposit Strategy?

If you decide you need a long-term savings account, you might want to consider a certificate of deposit strategy like the CD barbell strategy.

CDs with different terms come with different interest rates, so there can be advantages to splitting up your money. Rather than putting all of your savings into one CD, you can distribute your money to a few different CDs as a way to diversify your potential risk and reward.

The Takeaway

CDs come with different lengths or terms, and the longer the term, usually the higher the interest rate that you’ll earn. A CD barbell might make sense if you want the benefit of having some of your money in a higher-interest CD, while keeping the rest of it more liquid (although at a lower rate).

Using a CD strategy like the CD barbell strategy is one potential way to get higher returns with long-term CDs while still being able to access some of your money by using shorter-term CDs as well. You will, however, have your money tied up for a longer period of time, so there is a tradeoff that you’ll need to consider.

If you’re looking for better interest rates for your cash while maintaining easy access to your money, you might want to consider other options, such as a high-yield bank account. Do some investigating to see what savings strategy makes the most sense for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Why is it called a barbell strategy?

The CD barbell strategy is so named because you are investing in CDs at either end of the spectrum of possible terms, with nothing in the middle. This is similar to the shape of a barbell that has weights on either end but nothing in the middle.

Does the CD barbell strategy make more money than CD laddering?

With CD laddering, you usually invest an equal amount of your money in CDs that mature each year. Whether the CD barbell strategy makes more money than CD laddering will depend on exactly how you divide your money into different CD terms, as well as how interest rates change over the life of your CD strategy.

Does the CD barbell strategy make more money than the bullet CD strategy?

The bullet CD strategy is an investment strategy where you buy CDs that all mature at the same date. Which of these two CD strategies makes more money will depend on a couple of factors. The first is how interest rates change over time, and the second is exactly how you divide up your investments.

Photo credit: iStock/hachiware

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1917007-V1

Money market accounts and money market funds may sound like the same thing, but the former is actually a savings account, while the latter is a kind of investment. It’s not a matter of one being better than another; they are simply different financial products, and each can play an important role in a person’s money management.

Here, learn more about the uses and benefits of each.

Key Differences Between a Money Market Account and Money Market Fund

A money market account vs. fund are the same in the following ways:

•   Both options are a great place to keep cash in the short term.

•   Both options are low-risk and offer yields that help boost your cash position.

•   These financial vehicles offer easy access to your funds.

That said, there are some important differences between a money market account and a money market fund:

•   A money market account is a savings account, while a money market fund is an investment vehicle.

•   Money market accounts are insured by the FDIC, while money market funds are not federally protected.

•   You open a money market account with a bank or credit union, but you invest in a money market fund via a brokerage firm.

•   Money market accounts may or may not charge account fees; money market funds probably carry maintenance fees.

Here are these differences in chart form:

What Is a Money Market Account?

A money market account (or MMA) is a kind of savings account, which is one of the most common types of bank accounts. It allows account holders to earn a higher savings rate compared to a conventional savings account.

Thanks to its higher-than-standard annual percentage yield (APY), it can be a good option to earn interest. Simply put, your money can grow faster than it would at a lower APY account. (Interest earned will be taxable, as with other savings accounts.)

Another benefit is that money market accounts usually have some of the features of a checking account. These may include a debit card and check-writing abilities. It gives you easy access for spending money from your savings account.

This account type, however, typically involves a higher minimum balance compared to a traditional savings account. There may also be a maximum of six withdrawals per month from a money market account, whether by ATM, check, debit card, or electronic transfer.

Recommended: What Is a Good Interest Rate on Savings?

Are Money Market Accounts Safe?

If you open a money market account with a bank that is insured by the Federal Deposit Insurance Corporation (FDIC), you can consider your money to be safe. FDIC-insured banks give account holders peace of mind because even in the rare event of a bank failure, your money is insured up to $250,000 per depositor, per account ownership category, per insured bank. In other words, a money market account is a very safe deposit account.

What Is a Money Market Fund?

Money market funds are a type of mutual fund; they are sometimes referred to as money market mutual funds. Whichever term is used, these funds allow investors to purchase securities that may provide higher returns compared to interest-yielding bank accounts. There are a variety of types of money market funds, but many popular ones invest in debt securities with short-term maturities. This account is typically known as a lower-risk type of investment since it invests in high-quality, short-term debt securities.

Money market mutual funds are typically offered by brokerage firms and can be used as a savings or investing vehicle. The typical profile of a money market fund account holder is someone who wants to stow their cash away for a short period of time as an alternative to investing in the stock market. These funds tend to experience very low volatility compared to the stock market.

Depending on the specific fund, earnings may or may not be taxable.

Are Money Market Funds Safe?

Unlike a money market savings account, which is federally insured, money markets mutual funds are not FDIC-insured, though they are subject to the scrutiny of the Security and Exchange Commission. That’s because your fund could potentially lose value.

While there isn’t an FDIC safety net, money market funds likely invest in high-quality securities, so the risk of loss tends to be very low. The investments in the fund, for example, may be Treasury bills or certificates of deposit. For these reasons, money market funds have a reputation for being relatively safe investments even though you are not protected against losses.

Choosing Between a Money Market Account and Money Market Fund

Here’s important information on when a money market account is the right option and when a money market fund is the better choice. Or you might decide to have both.

When to Consider a Money Market Account

Account holders can consider a money market account if they want to improve their savings rate and get higher rates compared to traditional savings accounts. If you have an existing savings account and you want to put your extra cash to work for higher yield, a money market account could be a suitable option. It can be appropriate for short-term savings, though it may not be the best long-term savings account option.

Keep in mind that money market accounts, unlike some other common types of savings accounts, may have minimum deposit requirements. The higher the yield you’re searching for, typically, the greater the minimum deposit may be. In addition, there may be monthly fees for these accounts.

Money market accounts are also great for account holders who want the flexibility to write checks, withdraw cash, and even use a debit card for purchases. These features, which typically come with checking accounts, are some of the upsides of a money market account.

When to Consider a Money Market Fund

You may want to consider opening a money market mutual fund vs. a money market account (or any other vehicle) if you are seeking a low-risk investment with what are probably higher yields compared with savings accounts. More specifically, they may be a good option if you are, say, an investor looking to build up cash holdings through a high-quality investment vehicle that pays dividends reflecting short-term interest rates.

That said, investors must consider the fees attached to money market funds. Many investment vehicles charge a management fee or an expense ratio. This can range considerably, but the average annual rate is currently around 0.13%, so if you had $20,000 invested, you’d pay $26. This expense can eat away at your investment returns.

The Takeaway

Money market accounts and money market funds can be great tools for safely building wealth. However, they are different kinds of products: A money market account is a savings account that earns interest while providing checking-account style access (say, via a debit card). Money market funds are an investment vehicle that puts your money in historically low-risk debt securities. Depending on your money goals and style, either or both can be a positive part of your financial portfolio.

If you’re looking to grow your personal finances day to day, consider what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are money market funds safe?

While not immune to losses, money market funds are relatively safe investments since they invest in high-quality debt securities.

Can you lose money in a money market fund?

Since money market funds are an investment, they are not insured by the FDIC. There is a possibility of loss, but money market funds are known for investing in very low-risk debt securities.

What are money market funds?

Also known as money market mutual funds, money market funds are a low-risk investment account. They allow investors to purchase securities that typically provide higher returns than interest-yielding accounts.

Is a money market account considered cash in the bank, like a savings account?

Yes. A money market account is a savings account with some checking account features. Money can be withdrawn at will, but there may be a limit regarding how many of these transactions you can complete in a given month. Check with your financial institution for specific account details.

Photo credit: iStock/max-kegfire

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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