Simple definition
A money market fund is a low-risk mutual fund that invests in short-term, high-quality debt like Treasury bills and top-rated corporate IOUs. It aims to hold a stable share price, often $1, while paying modest interest. Think of it as a parking spot for cash: safer and steadier than most investments, but not built for growth.
Why it matters
Money market funds are a common home for cash you'll need soon or are waiting to invest, offering easy access and a small return. But that stable $1 share price is an aim, not a promise — in rare, severe conditions a fund can "break the buck" and dip below it. They also aren't FDIC-insured.
Real-life example
Say you move $10,000 of emergency savings into a money market fund. It aims to keep each share worth $1, so your balance stays near $10,000 while earning modest interest you can withdraw. This is a rounded, hypothetical example to show how the fund is used, not a promise of any specific return.
Common mistakes
- Treating the stable $1 share price as a guarantee rather than a goal the fund aims for.
- Assuming a money market fund is FDIC-insured the way a bank account is.
- Confusing a money market fund with a money market deposit account at a bank.
- Parking long-term money here and missing years of growth to inflation.
Pro tips
- Use money market funds for cash you'll need soon or are waiting to deploy.
- Know the fund isn't FDIC-insured and its $1 price is an aim, not a promise.
- Compare the fund's yield to a high-yield savings account before choosing.
- Check what the fund holds — government-only funds tend to be the most conservative.
Related Money Dictionary terms
- Mutual FundA pooled investment where many people's money is combined and managed together to buy a mix of stocks or bonds.
- NAV (Net Asset Value)The per-share value of a fund, calculated by dividing its total holdings' value by the number of shares.
- YieldThe income an investment pays you each year, shown as a percentage of its current price.
- Cash EquivalentA safe, short-term investment that can be converted to cash quickly, such as a money market fund or Treasury bill.
- Treasury BillA short-term government loan that matures in a year or less and is sold at a discount to its face value.
- LiquidityHow quickly and easily you can turn an investment into cash without moving its price much.
Frequently asked questions
Can I lose money in a money market fund?
It's uncommon but possible. These funds aim to hold a steady $1 share price, yet that's a goal, not a guarantee. In rare, severe market stress a fund can "break the buck" and dip below $1. They also aren't FDIC-insured. For most savers the risk is low, but it isn't zero.
Is a money market fund the same as a savings account?
No. A money market fund is an investment product that isn't FDIC-insured and aims for — but doesn't guarantee — a stable value. A bank savings or money market deposit account is FDIC-insured up to the legal limit. They sound similar and serve similar purposes, but the safety backing behind them is different.
What does it mean to "break the buck"?
Money market funds try to keep each share worth exactly $1. "Breaking the buck" means a fund's share value slips below $1, so investors could get back slightly less than they put in. It has happened only rarely, in times of serious market stress, but it's the reason the stable price is an aim rather than a promise.
Knowing what Money Market Fund means is knowledge — the first half. A brick gets placed when you act on it: compare the yield on a money market fund to your savings account and confirm whether each is FDIC-insured.
Also builds: Investing
Sources & references
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Plain-English education — not personalized legal, tax, or investment advice.