It’s easy to invest in a money market account. You can open an account and make deposits and withdrawals virtually any time you want. Your money is not tied up for any specific time period.

Investment Strengths

Check-writing and other privileges

Money market funds typically offer such services as check-writing privileges and/or the ability to transfer funds by telephone or the Internet from your money market fund to another mutual fund in the same family or to your checking account. There are usually restrictions on minimum check amounts and service fees may apply. These conditions are described in each fund’s prospectus.

Many fund families allow you to establish a periodic investment plan, drawing as little as $25 a month from your regular checking account to invest in your money market fund. This can be a relatively painless way to accumulate assets.

Higher interest rates

Money market funds usually offer higher rates than traditional savings accounts.

A convenience for active investors

Because money market funds are offered by both brokerage houses and mutual fund companies, they can be convenient places to hold your cash while you look for other investment opportunities. Most large brokerage houses provide their own money market funds and, with your authorization, they will automatically invest any money that you receive from buying and selling other investments in a money market fund. Likewise, when you want to make an investment, the broker will take the funds needed for the purchase out of your money market fund account.

Investment Risks

Caution: Most large mutual fund families offer an exchange privilege that allows you to transfer assets from your money market fund to other funds in the family. If you do so, however, you may incur an exchange fee and/or sales charge. In addition, the transaction may result in a capital gain or loss that will affect your taxes.

Money market funds are not required to maintain a $1 per share price

Money market funds are not bank accounts, and as noted above, they are not FDIC-insured. However, fund companies will go to great lengths to avoid “breaking the buck.” On some occasions, if a money market fund’s income fell below the level required to maintain a $1 per-share value, the investment companies that sponsored the funds voluntarily made up the difference to fund shareholders. However, the sponsoring companies are not obligated to do so, and there is no guarantee that they will always do so.

Technical Note: If a mutual fund company or brokerage firm offers its own private insurance for a money market fund, the fund deducts a fee from its total return in order to pay for the insurance. If the fund does not generate a return, the fee is paid out of fund assets.

Restrictions may apply

Although it is usually easy to make deposits and withdrawals from money market funds, the fund sponsor may impose certain restrictions on the account. For example, initial requirements to establish a money market fund can range from $25 to establish a monthly investment plan to initial deposits of $25,000 or more. Subsequent deposits may also have minimums.

In addition, the companies offering money market funds may give shareholders check-writing, Internet or electronic transfer, or ATM privileges. However, the companies may impose restrictions on such withdrawals or charge fees for these services. Restrictions and fees are described in each fund’s prospectus.

Shareholders pay the fund’s expenses

Mutual funds operate by pooling investors’ money and paying a professional money manager to invest it. The manager charges the fund a fee. In addition, the fund will charge fees for servicing shareholder accounts; some may also charge marketing fees.

Mutual fund fees are usually calculated as a percentage of the fund’s assets. All fees are deducted before any distributions are made to shareholders.


All mutual funds issue annual and semiannual reports that disclose in detail the fund’s income and expenses for the reporting period. These reports also include a list of the investments in the fund’s portfolio as of the reporting date.

Getting started

Money market funds are available from mutual fund companies directly as well as from banks and brokers. Application forms to establish an account are usually included in the fund’s prospectus.
The terms and conditions of each money market fund vary considerably. For this reason, it is important to shop around for a fund that meets your needs for current income and convenience. Be aware that the returns listed in the prospectus are past returns and do not guarantee future returns. Before investing in any mutual fund, carefully consider its investment objectives, risks, charges, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.

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