What Is a Money Market Fund?

Introduction

If you want a safe place to keep cash while still earning interest, a money market fund might be an option. These funds have become extremely popular, holding trillions of dollars.

What Is a Money Market Fund?

A money market fund is a type of mutual fund that invests in short-term, high-quality debt, like U.S. Treasury bills and short-term loans to companies and banks. The goal is to keep a stable value, usually $1 per share, while paying interest.

Why People Use Them

Money market funds are often used to hold cash in brokerage accounts. They usually pay higher interest than regular savings accounts, especially when interest rates are high. They are also very liquid, meaning you can usually access your money quickly.

Money Market Funds vs. Savings Accounts

Money market funds are different from money market accounts at banks. Bank accounts are FDIC insured, while money market funds are not, although they are considered very low risk. In rare cases, like in 2008, a money market fund has fallen below $1 per share, which is called breaking the buck.

Conclusion

Money market funds offer a safe, flexible place to park cash and earn interest. They are a useful tool for short-term savings and emergency funds!