What is a Money Market?

One of the most basic types of investments an individual can make is putting there money in a money market account. When someone is first learning how to invest they will inadvertently end up with there money in such an account. This happens because when you open an investment account at a broker, the holding place for your money, is generally a money market. Some brokers however do not accomplish this and require you to put your money into a money market mutual fund. So just what is a money market?

A money market is similar to a bond. It is an IOU issued from a corporation or government with a very short-term maturity. That means the issuing agency will completely pay off the debt in less than one year. A money market account is in actuality a huge basket of short-term securities.

In most cases an individual will use a money market fund instead of purchasing the individual short-term securities. The individual securities, which make up a money market, are sold in extremely high denominations. In order to be completely diversified it is almost guaranteed that you will use a money market account or fund.

In general money market funds are extremely liquid and extraordinarily safe. You can literally use a money market account just like your average checking and savings accounts. In some cases institutions will let you write checks against a money market account and even issue you a debit card. The price for this extreme safety, and flexibility is lower returns than other investment vehicles. However, a money market still beats a savings account hands down.