Money Market Fund

A money market fund invests in very short-dated instruments such as treasury bills and commercial paper, aiming to preserve safety while earning a bit more than a deposit account. It is widely used as a place to park cash between other uses.

Its stability comes from maturity. The longer a bond's maturity, the more its price swings on small rate moves, but a money market fund holds paper maturing in days to months, so price movement is minimal. The unit value stays nearly flat, and interest accrues even for a single day of holding.

Its uses are clear: money you will spend in a few months such as a deposit or tuition, or proceeds from selling stock while you decide where to invest next. Unlike a term deposit, you are not locked in, and withdrawals typically settle by the next business day.

Be aware that it is not a deposit. A money market fund is a fund, so principal is not guaranteed and it is not covered by deposit insurance. In practice these funds have preserved principal, but in a severe credit crisis the commercial paper they hold can sour. And when rates are very low, fees can leave almost no real yield, so check the expense ratio and recent returns before parking money there.