Money Market Funds, Explained

A money market fund is a mutual fund that buys securities such as Treasury bills, short-term commercial debt, and certificates of deposit. It sticks to short-term, high-quality securities and is relatively safe and liquid. Money market yields vary according to short-term interest rates. But they fall dramatically short of the stock market's historical average return of 10-11% per year. They're generally ill-suited for long-term savings, but they're great for short-term investments, such as for money you'll need in the near future.

Remember that the only money you should have invested in stocks is money that you won't need for at least five (ideally 10 or more) years. Money you'll need sooner should be in short-term savings. Visit our Savings Center for more scoop on your options and some special interest rates.

Our 60-Second Guide to Short-Term Savings may also be of interest. It offers tips such as:

"If you're having trouble saving, we highly recommend an automatic transfer program. You can also see if your employer will split your paycheck (direct deposit) between your ordinary account and your short-term savings account."

To learn more about investing Foolishly, visit our Fool's School and our Investing Basics area. Or check out some of our inexpensive and well-regarded online how-to guides (which feature money-back guarantees). You can also learn all about brokerages and find one that's right for you in our Broker Center.


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