Money Market Mutual Funds

Today, money market mutual funds account for nearly 1,000 of the more than 8,000 mutual funds available to the market.  Even more impressive is the fact that money market funds assets account for more than one-quarter of all mutual fund assets. That's around $2 trillion invested in money market funds alone.

Money Market Funds Defined

So just what is a money market mutual fund - how can we define this type of account?  A money market fund is defined as a mutual fund that is required by law to invest in low-risk securities. That means these funds are relatively low-risk investments compared to other types of mutual funds.  They also pay dividends to shareholders that are pretty much aligned with short-term interest rates.

Money Market Investing

Money market funds invest in things like certificates of deposits, government securities, commercial paper of companies, and other low-risk, highly-liquid securities. And unlike other mutual funds, they attempt to keep their net asset value (NAV) at a constant $1.00 per share.

Don't confuse money market investing with money market deposit accounts found at local banks.  For example, money market funds are not insured through the Federal Deposit Insurance Corporation (FDIC).

Even thought money market funds are not insured, they are still considered very safe investments because the fund's holdings typically include investments like Treasury Bills sold by the federal government.  Since the government has the ability to raise funds to cover expenses through taxes, the likelihood of default on a government security is extremely low.  That's why many consider money market funds a "safe" investment.

Stated another way, it is very likely that the US government will pay all interest due on its bonds and bills.  If the government were to stop paying on these obligations, we've got bigger problems to worry about than the interest rate on a money market fund.

Liquidity and Money Market Funds

Money market funds are also considered very liquid investments. This means you can take money out of your account on relatively short notice. There is also no penalty for taking money out of your money market fund, unlike banking instruments such as certificates of deposit (CD's) that can impose fees for early withdrawals.
 
Some investors take these desirable attributes of money market funds and use the fund as a safe haven for money in-waiting between investments.  In addition, if you are looking for a place to hold your money while you are saving for a big purchase like a new home or even college tuition, money market funds just make good sense.  You can earn a competitive rate of interest on your money and virtually eliminate the possibility of putting the principal at risk.

Money funds provide the benefit of pooled investments, as investors can participate in a more diverse and high-quality portfolio than they otherwise could individually. And like other mutual funds, each investor buys into a money fund is considered a shareholder of the investment pool, a part-owner of the fund.

Money Market Interest Rates

After yielding right around 1% for the last several years, money market rates are starting to gain the interest of investors once again.  In 2008, we're starting to see money market interest rates hovering around 2.5%.  This makes then an attractive alternative to bond funds which are providing similar yields.

Top Money Market Funds

We're going to finish up with a list of some of the best money market interest rates you'll find today (September 2008).  These money market funds have been ranked in terms of their 7-day yield, which is the typical performance benchmark you'll find with this type of fund.

Top Money Market Fund Interest Rates

You can find more up to date information concerning the current yields / interest rates on money market mutual funds by visiting IMoneyNet.com.

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