Money Market SEC Yield vs APY: Which Grows Faster?

Which one grows your money faster—SEC yield or APY? It’s a question that confuses even seasoned savers. In fact, a recent survey showed over 60% of Americans don’t know the difference between a money market fund and a savings account. That lack of clarity can lead to missed opportunities when trying to maximize your savings.

I’ve worked in banking long enough to spot the trap: two yields, two products, both sounding “safe,” but delivering very different results. In this guide, I’ll break it down simply. If you’re also wondering which funds are worth considering, check out my reviews of the 5 top money market funds in 2025 and what Wall Street doesn’t tell you about MMFs. Whether you’re just starting to invest or trying to optimize your cash, you’ll walk away knowing which account actually works harder for you.

What Is a Money Market Fund and Its SEC Yield?

Money market funds (MMFs) are mutual funds that invest in short-term, low-risk debt like Treasury bills, commercial paper, and repurchase agreements. They’re often used as a cash parking option that pays more than a checking account but still offers safety and liquidity. Many investors use MMFs as a short-term place to store money while waiting for better market conditions or to manage cash for expenses.

The SEC yield, commonly quoted for MMFs, is based on the income the fund earned over the past 7 days, annualized and adjusted for fees. It’s a useful snapshot of recent fund performance but does not include compounding. Unlike other return metrics, the SEC yield offers a standardized method to compare MMFs across providers.

What the SEC Yield Means and How It’s Calculated

Here’s how the SEC yield is calculated:

• Take the income the fund generated in the last 7 days
• Annualize it (multiply by 365/7)
• Subtract expenses and divide by the fund’s current price per share (NAV)

The result is the SEC yield. It reflects what you’d earn if the yield stayed the same all year and you didn’t reinvest the dividends. The calculation is designed to smooth out volatility and offer a clean number investors can use to evaluate income-producing funds.

Why It’s Used Instead of APY in Money Market Funds

APY assumes regular compounding on a fixed interest rate, which doesn’t fit the MMF model. MMFs fluctuate in yield and pay out income as dividends, not through compounding interest. So, the SEC yield gives a more accurate picture of income flow. Unlike APY, it doesn’t make assumptions about reinvestment, which makes it more transparent in dynamic rate environments.

Additionally, SEC yield factors in fund expenses, offering a net view of earnings. This makes it especially useful for comparing MMFs with different fee structures.

Example: $10,000 in a MMF

Let’s say you invest $10,000 in an MMF with a 4% SEC yield.

• Over the year, you might receive ~$400 in dividends if the yield stays constant.
• If you reinvest those dividends monthly, your actual return is higher than 4%—more like $404–$405, depending on timing.
• But the SEC yield will still say 4%, because it doesn’t reflect reinvestment.

In reality, the longer you leave dividends reinvested, the more compounding will work in your favor. Over several years, the effect becomes more noticeable.

What Is a Savings Account’s APY and How It Works

APY, or Annual Percentage Yield, shows the total return you’d earn over a year, including compounding. It’s the go-to figure for comparing savings accounts, CDs, and other fixed-rate products. It accounts for how often interest is added to your balance—whether daily, monthly, or quarterly.

If a bank says you’ll earn 4% APY, that already includes compounding—so you’ll earn exactly $400 on $10,000 over one year (assuming no withdrawals or deposits). This means you don’t need to calculate anything manually. APY is meant to make apples-to-apples comparisons simple.

How Banks Use APY for Marketing

Banks love APY because it sounds high and doesn’t require consumers to do the math on compounding. But unlike what some people think, a higher APY always beats a lower APY, regardless of compounding frequency—because APY already includes that effect.

Bad example: “A 1.75% APY with annual compounding is worse than 1.50% APY with daily compounding.” ❌ Wrong. The 1.75% APY already accounts for its compounding schedule. So, 1.75% APY always earns more than 1.50% APY.

Still, you should read the fine print. Banks may advertise an attractive APY, but charge fees or impose minimum balance requirements that reduce your effective return. Always look at the full product terms.

Compounding Frequency: Daily, Monthly, Quarterly

The frequency of compounding can affect how quickly your balance grows—though this is already included in APY. Still, it’s useful to understand the mechanics:

• Daily compounding: Interest is calculated and added every day. Most favorable.
• Monthly compounding: Interest is added once per month.
• Quarterly compounding: Added every three months. Slower growth.

Even though APY smooths out these differences, higher compounding frequency benefits you in non-APY calculations (like simple interest accounts or for deeper yield analysis).

Example: $10,000 in a High-Yield Savings Account

• At 2% APY, your $10,000 grows to $10,200 over a year.
• Daily compounding contributes to this return, but the final result is already reflected in the 2% APY.
• If compounded monthly instead, the final balance would be slightly less (~$10,200 vs. ~$10,198), but you wouldn’t need to care unless comparing nominal rates.

This convenience is what makes APY such a helpful figure for consumers.

Historical Performance: MMFs vs. Savings Accounts

Historically, money market funds have tended to offer higher yields than traditional savings accounts—especially during rising rate environments. In 2022–2024, for example, many MMFs yielded over 4% while savings accounts lagged behind.

However, savings accounts are backed by FDIC insurance (up to $250,000 per depositor), while MMFs are not. This adds a level of guaranteed protection that some risk-averse investors prioritize.

MMFs are more responsive to Fed rate hikes, while banks tend to delay passing those benefits to savings customers. That’s why investors often migrate to MMFs during tightening cycles.

Key Differences Between SEC Yield and APY

Feature	SEC Yield	APY
Compounding	Not included (linear)	Included (exponential)
Income Type	Dividend income from securities	Interest credited by a bank
Volatility	Can change daily	Typically stable, but adjustable
Reinvestment Effect	Not reflected in yield itself	Fully included in APY
Used For	MMFs, bond funds	Savings, CDs, checking with interest
Regulatory Body	SEC	NCUA/FDIC governed
Risk Level	SIPC insured (but mark-to-market loss)	FDIC insured (up to $250,000)

Final Thoughts

If you’re deciding between a savings account and a money market fund, think about your goals. If you want predictability and simplicity, a high-yield savings account with a strong APY might be your best bet.

But if you’re okay with a bit of yield fluctuation and you reinvest dividends, a money market fund with a stable SEC yield can offer a slightly higher effective return.

Just remember: SEC yield does not include compounding, but your actual return can exceed it if you reinvest. APY already includes compounding, so what you see is what you get.

In practice, the better option comes down to your risk tolerance, liquidity needs, and financial goals. For emergency funds, FDIC-insured savings accounts might be ideal. For cash reserves that can be slightly more flexible, MMFs offer higher yield potential with minimal added risk.

If rates are rising and you’re actively managing your cash, MMFs can be a tactical tool. If you just want to park your money and forget it, go with a stable APY savings account. Either way, understanding these yield metrics ensures you’re not leaving money on the table.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered personalized financial advice, as investment decisions should always be based on your individual financial situation and risk tolerance. Past performance and current yields mentioned are not guarantees of future results, and you should consult with a qualified financial advisor before making any investment decisions.