Money Market Fund
Candlefocus EditorMoney market funds invest in financial instruments with short maturities, such as Treasury bills; money market mutual funds are prohibited from investing in instruments with maturities more than 13 months. This means that investors don't have to worry about their principal changing due to interest rate shifts over time. Money market funds also invest in high-quality debt instruments issued by corporations, negotiated deposits, government-sponsored entities, and other financial institutions, as well as high-quality, short-term debt securities issued by banks, corporations and the US government.
The primary difference between money market accounts and money market funds is that the former are offered by banks, while the latter are offered by mutual fund companies. Money market accounts must comply with FDIC rules, unlike money market funds which are managed by mutual fund companies and regulated by the Securities and Exchange Commission. While money market accounts offer the same income source, money market funds are considered a safer investment since the underlying investments are of higher quality.
When investors put their money in a money market fund, they are protected from exposure to the volatility associated with more speculative investments. They also benefit from slightly higher returns than they would receive using a traditional savings account. Money market funds are also known for offering higher liquidity than other investments and cash equivalents, allowing investors to easily transfer money in-and-out of their investments when needed.
In summary, money market funds are a great way to save money, offering many advantages over their traditional counterparts. Although these investments only offer limited returns, they provide investors with the peace of mind that comes with an extremely safe, low-risk investment. Money market funds are considered the ideal option for someone with a smaller amount of money to invest and are looking to earn a return without taking too much risk.