The Rush Into Money Market Funds: Should You Invest?

If you’re looking for a low-risk investment, you may want to look into money market funds. But it’s important to understand these financial instruments before you jump in. So let’s take a look.

What’s a Money Market Fund?

Money market funds are mutual funds that invest in low-risk, short-term securities such as Treasury bills and corporate bonds. They’re known for their safety, liquidity, and moderate returns. This is why they are popular among retirement savers and those looking to build an emergency fund with higher returns than a traditional savings account.

Government funds: These funds mainly invest in Treasury securities, U.S. government securities, and cash.

General purpose funds: These funds could invest in a variety of securities like corporate bonds and CDs.

Municipal: These funds invest in state and national municipal securities. They may be tax-exempt at the federal level or both the state and federal level.

Why Invest in Money Market Funds?

Money market funds can serve as valuable fixed-income assets that can diversify your portfolio. Money market funds stand out for their security, liquidity and potential tax advantages.

The Securities and Exchange Commission (SEC) requires money market funds to invest in high-quality, short-term, and low-risk investments. This makes them less prone to market volatility than many other types of securities.

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Moreover, municipal money market funds can be exempt from both state and federal taxes, making these funds a safe and tax-advantaged option. And given their safety and liquidity, many investors use money market funds to park cash until new investment opportunities arise.

Money market funds are also less prone to interest rate risk than longer-term bond funds because of their short durations, with a maximum of a few months.

But as with all securities, money market funds do come with risks.

Risks of Investing in Money Market Funds

Although money market funds stand out for their safety, they’re not insured by the Federal Deposit Insurance Corp. (FDIC) as savings accounts and CDs are. This is because money market funds are investments and not bank deposits.

And because of the low-risk mechanisms of the underlying investments these funds hold, their returns generally aren’t as high as stock and bond funds. This could open the door for inflation risk. Lower returns could be significantly eroded during periods of high inflation.

Money Market Funds Versus Money Market Accounts

Money market funds are different from money market accounts, which are bank deposits. Money market funds are investment securities. You can invest in money market funds through a brokerage account or directly through a mutual fund company.

You can open a money market account through a bank or credit union. Both are highly liquid, though accessing money from a money market account is slightly easier. Some banks provide debit cards tied to money market accounts that you can use to withdraw funds instantly from ATMs. You can access money market funds through a brokerage account, and funds are typically available within a day. Money market accounts are insured by the FDIC or the National Credit Union Administration (NCUA) if accessed through a credit union.

Money market account rates are set by the financial institution offering them, while money market fund returns are dictated by the market.

Both are designed to be low-risk products offering stable and modest returns. But they are not the only options for fixed-income investors or those looking to build strong emergency funds.

Other Low-Risk Options

If you’re looking for a place to build an emergency fund with the added security of FDIC insurance, you could opt for a high-yield savings account.

And if you don’t need the money very soon, you can opt for a CD. These tend to pay higher yields than savings and money market accounts. But you’d need to lock up your money for a certain term—typically three to 60 months—or face penalties.

In addition, you could consider Treasury bills. These are short-term loans issued by the U.S. government. They are backed by the full faith and credit of the United States, making these some of the safest securities around.

You can purchase Treasury bills with durations of 4, 8, 13, 17, 26, or 52 weeks. Treasury bills are sold at a discount, and you get the face value at maturity. For example, say you buy $1,000 worth of Treasury bills for $950. At maturity or when the term ends, you’d get $1,000. You could consider interest as a $50 payment.

Should You Invest in Money Market Funds?

If you’re looking for a place to park large sums of cash until better investment opportunities arise, then a money market fund may be right for you. Their safety, liquidity, and moderate returns can also help you protect your retirement nest egg from market volatility or allow you to build an emergency fund with higher yields than a traditional savings account. While you may not get as high returns as you would from a stock mutual fund, a money market fund can add diversification and downside protection to your portfolio.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.