Money Market Funds

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Money market funds are a type of mutual fund. By law, money market funds must be invested in low-risk securities. Typically, these investments may include government securities, certificates of deposit, commercial paper of companies (a type of short-term debt instrument), or other low-risk securities.

Money market funds are relatively low risk compared with stock or bond mutual funds. They attempt to keep their net asset value at a constant $1 per share. That means that they strive to make each share cost $1, and only the yield (the interest and dividends paid on the account) moves up and down. Despite the relatively low risk, there is no guarantee that the fund will be able to maintain a $1 net asset value. Investor losses in money market funds are rare, but they are possible.

Money market funds that are held outside of retirement accounts, such as 403(b) plans, may offer limited check-writing privileges.

What about Money Market Accounts?

It is important to understand the difference between a money market fund and a money market account at a bank or credit union. A money market fund is not federally insured. It is regulated by the Securities and Exchange Commission.

A money market account is an account at a bank or credit union and is federally insured by the FDIC (bank) or NCUA (credit union). Money market accounts generally pay higher rates of interest than a typical savings account and offer limited check-writing privileges.

Your 403(b) plan does not offer money market accounts. However, it may offer money market funds as an investment option.