What are they?
My Credit Union offers one.
What are they, & how do they work?
Can you get the cash out, when needed?
Are the returns good?
Other views? Information? Fart jokes?
And…how’s the veal?;)
Money market funds are specially designed mutual funds which invest in short-term, highly-rated commercial and government debt, which matures in 13 months or less. They are designed with the goal of having each share of the fund maintain a value of precisely one dollar, with interest from the debt investments being paid to shareholders. You can generally withdraw under the same terms as a savings account.
In short, it’s a slightly fancier version of a savings account, which is why banks and credit unions offer them. The interest rates are generally slightly better than a standard savings account. However, the interest rates on everything are extraordinarily shitty these days and have been for close to a decade.
As a practical matter, the difference will not amount to much unless you have vast amounts of liquid capital at your disposal, in which case you probably want a more sophisticated vehicle than a money market fund.
First, make sure that you are not confusing a “money market fund” with a “money market savings account” or a “money market deposit account.”
A money market fund is a mutual fund that invests in short term (less than 90 days) debt. They used to be a great investment for your liquid cash. Right now, they are useless. Short term rates are barely higher than zero and once you subtract fund expenses, there is nothing left. In fact, many funds are being kept afloat by subsidies and fee waivers from their sponsors.
Unless you were talking to an “investment advisor” (stock broker) who has a desk in your credit union’s lobby, it was very unlikely that your credit union was offering you a money market fund.
As for a money market deposit/savings account: A long time ago, the federal government used to regulate deposit rates at federally insured banks and credit unions. During the 1970s, the interest rates went through the roof and banks were losing deposits to entities such as money market funds. The federal regulators dreamed up a new kind of account that allowed the banks to pay a variable interest rated tied to the 90-day treasury note yield. But they had to put certain restrictions on the account: No more than 6 “convenient” withdrawals per month and a $2500 minimum balance. But they also allowed three of the six withdrawals to be done by check. Also the regulators lowered the reserve requirement to zero on these accounts.
Later, federal regulations changed and banks were allowed to pay whatever they wanted on savings accounts. They didn’t have to impose a $2500 limit or link the returns to the 90-day treasury yields. They could do almost anything they wanted. One rule remained: if a bank wanted to have a zero reserve requirement on a deposit, they still had to enforce the six “convenient” withdrawal limit on the account. The three check limit no longer applies. (Note: Any bank is free to impose stricter requirements.)
Basically now the term “money market” is just a marketing term. I’ve even had a “money market checking” account at one bank. It doesn’t mean much. Look at the rates your credit union is offering on the account, look at the fees and restrictions, compare them to other accounts at the same CU or at different financial institutions (whether or not they have the words “money market” in their name), and choose whichever one offers the best deal for you. Without looking at the specific terms that your credit union offers, there is no way anyone can tell you if this specific account is a good deal for you.
One more note: A money market mutual fund is not insured. A money market deposit account at a bank or CU is insured if the the bank or CU is insured.
I want to address this because there is a very important distinction here:
I know the lines between banks and brokers have become fuzzy in recent years and confused consumers who talk to someone in the bank lobby don’t know if they are talking to a banker or a broker anymore, but it is important to note that banks (at least the retail deposit arms of banks) and credit unions do not offer money market funds. If they are being sold at the bank, they are being sold by the investment/brokerage division of the bank (think Merrill Lynch, not Bank of America).
A bank or credit union can offer a confusingly similarly named “money market savings (deposit) account” which is not a mutual fund. A big difference is that a money market mutual fund is NOT federally insured. A bank or CU money market savings account is FDIC or NCUA insured.
As for yield, the Crane 100 7-day money market mutual fund average yield is 0.06% as of today. The highest yielding taxable retail fund is yielding 0.10% (Delaware Cash Reserve A).
The bankrate.com average yield for bank/CU money market savings accounts (they lump together all savings accounts whether or not the financial institution uses the word “money market” in the account name) is 0.49%. The highest yielding account is 1.05% at CIT Bank (not to be confused with Citibank).
Thanks for this explanation. I was previously only familiar with the MMFs offered through my brokerage firm.
People put all their money together and a stock broker invests it for them hopefully for big profits. There are many different variations but that is the most basic explanation.
I think you’re thinking of equity-based mutual funds. Money market funds invest only in short-term debt. They are not allowed to invest in anything else.
The value of a Money Market account at a Credit Union is that it allows you to park money at a slightly higher interest rate than your checking account. My Credit Union allows instant transfer from the Money Market account to the checking account.
Dividends today are pitiful. They range from 0.150% to 0.400%. The advantage is that an MM is free. Putting the money into most brokerage accounts will cost you a percent or two in fees, and access might not be as swift as you like.
You might think of it as a hierarchy. Checking and savings accounts are at the bottom. Low return but instant access. If you have a moderate amount of money (say, $1500 to $15,000) that’s too small for a financial institution but need in the near future then place it in a money market account. If you have a moderate amount of money that you don’t need for a year or two put it in a CD. If you are able to park it for the long haul, then mutual funds or stocks or some financial instrument might be best.
My thanks to you all.
