What you can own
Money market fund
A fund holding very short-term, high-quality debt, used as an alternative to a deposit account.
How it works
These funds hold treasury bills, commercial paper and similar instruments with very short maturities, aiming to preserve capital and pay the prevailing short-term rate.
They are not deposits and are not covered by deposit insurance, though in most jurisdictions they are tightly regulated on what they may hold.
Where it misleads people
Money market funds have broken their stable value in past crises, requiring intervention. The risk is small and it is not zero, and it is concentrated in the funds reaching for a little extra yield.
Related terms
- Treasury billVery short-term government debt, issued at a discount and repaying face value within a year.
- Cash dragThe return lost by holding cash in a fund or portfolio rather than being fully invested.
- Liquidity riskThe risk of not being able to sell when you want to, without accepting a bad price.
- Commercial paperShort-term unsecured borrowing issued by large companies, usually maturing within nine months.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.