Back to glossary
Account & Regulation

Money Market Fund

A type of mutual fund that invests in short-term, low-risk debt like Treasury bills and commercial paper. Used as a cash-equivalent place to park money with a higher yield than a typical bank account.

What is a money market fund?

A money market fund is a mutual fund that invests only in short-term, high-quality debt: Treasury bills, commercial paper, certificates of deposit, and similar instruments. The goal is to preserve capital while paying a modest yield. They are commonly used to park idle brokerage cash that isn't currently invested.

Key features

  • Low risk: invests only in short-duration, high-credit-quality debt. Extremely rare for a money market fund to lose principal, though it has happened
  • Stable NAV: most money market funds target a net asset value of $1.00 per share
  • Higher yield than a checking account: typically tracks short-term interest rates closely
  • Daily liquidity: can be bought or sold any business day, with proceeds settling same day at most brokers
  • No FDIC insurance: unlike a bank account, money market funds are not federally insured. SIPC coverage protects against broker failure but not against fund losses

Types

  • Government money market funds: hold Treasury bills and government repos. Safest tier; interest from Treasury holdings may be exempt from state income tax
  • Prime money market funds: hold a mix of government and corporate short-term debt. Usually higher yield, slightly more credit risk
  • Municipal money market funds: hold short-term muni bonds. Interest is typically federally tax-exempt, sometimes state-exempt, but yields are lower

Money market fund vs. money market account

A money market account (MMA) is a bank product with FDIC insurance and often lower yields. A money market fund is a securities product offered by a brokerage, with no FDIC but higher yields and easy integration with an investment account. They sound similar but are structurally different.

When the Fed raises rates, money market funds are often the first place yield shows up. They are a useful parking spot for cash you plan to deploy soon without locking it up in a CD.

Related Terms

Certificate of Deposit

A time deposit at a bank or credit union that pays a fixed interest rate for a set term. FDIC-insured up to the standard limit and lower risk than most investments, but with early withdrawal penalties.

Index Fund

A mutual fund or ETF designed to track a specific market index, such as the S&P 500. Low fees, broad diversification, and historically better long-term returns than most actively managed funds.

Mutual Fund

A pooled investment fund managed by a professional that buys a portfolio of stocks, bonds, or other assets. Investors buy shares of the fund, not the individual holdings.

REIT

A Real Estate Investment Trust: a company that owns income-producing real estate and trades like a stock. Required to pay out at least 90% of taxable income as dividends, which makes REITs popular for income investors.