Money market mutual funds hold short-term financial instruments like U.S. Treasury bills, CDs, and the short-term debt of U.S. corporations, called commercial paper. The funds have a stated net asset value of $1.00 per share, and most offer check-writing privileges. They are instantly liquid. You don't have to wait for them to mature—you just write a check. The objective of a money market fund is to keep the value of a dollar constant while paying you some interest.
Money markets can be for:
*An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
There are three basic types of money market funds:
IMPORTANT NOTE: When researching money market funds, you may notice that some funds have a yield (interest rate after expenses are subtracted) much higher than others holding the same kinds of securities. This is typically because the funds are either new or trying to attract more investors. Read the fine print! If the fund says that it is "temporarily absorbing operating expenses," then these higher yields are bound to go away.
You may be trying to decide on whether to choose a taxable or tax-exempt fund. See the section Liquidity Needs and refer to the "after-tax return chart" to help you. Take your federal marginal tax rate and the interest rate your taxable money market fund pays you. Follow the lines across and down to find your after-tax return. If you can do better than the after-tax return in a tax-exempt fund, use it. If not, stay in a taxable fund.
*An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Investments are not a deposit or other obligation of, or guaranteed by, the bank, are not FDIC insured, not insured by any federal government agency, and are subject to investment risks, including possible loss of principal.