- What is a money market fund?
- How money market funds work
- Types of money market funds
- NAV: Stable vs. floating net asset value
- Money market fund vs. money market account
- Are money market funds safe?
- Can you lose money in a money market fund?
- Benefits of money market funds
- Risks of money market funds
- How to choose the best money market fund
- Money market funds for businesses and startups
- Optimize operating cash automatically with Ramp Treasury
A money market fund (MMF) is a type of mutual fund that invests in short-term, high-quality debt to provide stability, liquidity, and a competitive yield. MMFs are among the most widely used cash management tools for startups, finance teams, and treasury operations—though individuals also use them for high-yield savings.
What is a money market fund?
A money market fund (MMF) is a mutual fund that invests in very short-term, high-quality debt, such as:
- U.S. Treasury bills
- Government agency securities
- High-grade corporate commercial paper
- Certificates of deposit (CDs)
- Repurchase agreements (repos)
Money market funds are designed to offer:
- Capital stability
- Daily or weekly liquidity
- Market-driven yield
- Low volatility
They are regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940.
Important: Money market funds are not insured by the FDIC. They are investment products and carry a small degree of market and liquidity risk.
How money market funds work
Money market funds earn returns from interest on short-term holdings. Because those holdings mature quickly, yields adjust rapidly when interest rates change.
Key mechanics of MMFs
- You buy shares in the fund
- The fund invests in diversified short-term securities
- You earn monthly dividends from interest income
- Redemptions typically settle T+1 (next business day)
- Some platforms offer same-day liquidity depending on cut-off times
Think of it like this:
You and a group of people put money into a shared pot. A professional manager uses that pot to make a bunch of very safe, short-term loans—like lending to the government or big banks for 30-60 days. Every day, the interest from those loans is divided among everyone based on how much they have invested. When you want your money back, you just withdraw your share—usually available the next business day.
Why yields adjust quickly
Money market funds continuously reinvest maturing securities.
- When rates rise → new securities offer higher yields
- When rates fall → reinvestment happens at lower yields
This makes MMFs more responsive than most savings accounts.
Types of money market funds
Understanding MMF categories enables finance teams to choose the right fund based on yield, liquidity, and risk tolerance.
1. Treasury money market funds
Invest almost entirely (≥99.5%) in:
- U.S. Treasury bills
- U.S. government securities
- Cash
Best for: Maximum safety and liquidity.
2. Government money market funds
Invest ≥99.5% in:
- Government securities
- Government agency debt
- Repos collateralized by government securities
Best for: Stability and a stable $1.00 NAV objective.
3. Prime money market funds
Hold a broader mix, including:
- Corporate commercial paper
- CDs
- Floating-rate notes
- Repos
Best for: Higher yield potential with moderately higher risk.
Note: Institutional prime funds often use a floating NAV, meaning share prices can vary.
4. Tax-exempt (municipal) money market funds
Invest in short-term municipal securities.
Best for: High-income investors seeking tax-exempt interest income.
NAV: Stable vs. floating net asset value
Money market funds price their shares using net asset value (NAV) — the price of a single share. For example, if a fund owns $1 million in securities and has 1 million shares outstanding, each share is worth $1.00. Money market funds use two NAV structures: stable NAV and floating NAV.
Stable NAV (typically $1.00 per share)
Most retail and government money market funds use a stable NAV structure.
- Seeks to maintain a constant $1.00 share price
- You earn returns through dividends, not price changes
- Stable NAV is a target, not a guarantee. During severe market stress, a fund could "break the buck." If a fund breaks the buck, you might get back $0.99 for every dollar you invested. For a business with $5 million in a money market fund, that's a $50,000 loss—which is why this event, though rare, gets so much attention.
Floating NAV
Used by institutional prime and institutional tax-exempt MMFs.
- NAV fluctuates with the market value of underlying securities (e.g., $1.0001 → $0.9998). This means you might invest $100,000 and see the balance show as $99,980 the next day—not because you lost money, but because the share price moved slightly. Your accounting team will need to track these small changes, unlike with a stable NAV fund where the balance stays flat.
- Provides greater transparency into portfolio valuation
- Requires slightly different accounting workflows for treasury teams
Why NAV matters
- Determines the price at which you buy and redeem shares
- Affects accounting treatment for your business
- Influences whether the fund behaves more like cash (stable NAV) or a short-term investment (floating NAV)
Stable NAV vs. Floating NAV in Money Market Funds
| Feature | Stable NAV MMFs | Floating NAV MMFs |
|---|---|---|
| Typical NAV | Fixed at $1.00 (target, not guaranteed) | Moves with market value (e.g., $1.0001 → $0.9998) |
| Common Fund Types | Retail and government funds | Institutional prime and municipal funds |
| Price Movement | Minimal; returns paid through dividends | Daily changes based on underlying holdings |
| User Experience | Cash-like stability | Transparent, mark-to-market pricing |
| Accounting | Straightforward; no NAV tracking | May require mark-to-market accounting |
| Risk Profile | Very low, but still investment risk | Slightly higher due to NAV variability |
| “Breaking the Buck” | Rare; NAV can fall below $1.00 in stress | NAV already floats, so movement is expected |
Money market fund vs. money market account
Money market funds and money market accounts sound similar, but are fundamentally different.
Money market fund (MMF)
- Investment product governed by the SEC
- Not FDIC insured
- Market-sensitive yield, typically higher
- T+1 settlement (usually)
- May use a stable or floating NAV
Money market account (MMA)
- Bank deposit account
- FDIC/NCUA insured (up to limits)
- Lower yield than many MMFs
- Same-day ATM/debit/check access
Money Market Fund (MMF) vs. Money Market Account (MMA)
| Feature | MMF | MMA |
|---|---|---|
| FDIC insured | No | Yes |
| Yield | Higher, market-sensitive | Lower |
| Liquidity | T+1 (usually) | Immediate (ATM, debit, transfers) |
| Risk | Market + liquidity risk | Bank account risk only |
| Regulation | SEC | Banking regulators (FDIC/NCUA) |
Are money market funds safe?
Money market funds are considered one of the most stable short-term investment vehicles, primarily due to SEC Rule 2a-7, which imposes:
- Strict credit-quality requirements
- Maximum maturity limits (≤397 days)
- Weighted average maturity (WAM) ≤ 60 days
- Weighted average life (WAL) ≤ 120 days
- Diversification rules (≤5% per non-government issuer)
Liquidity requirements (updated after 2023 SEC reforms)
- At least 25% of assets must be in daily liquid assets
- At least 50% must be in weekly liquid assets
These safeguards help ensure MMFs remain liquid during market stress.
Can you lose money in a money market fund?
Yes, but it is rare.
A money market fund can lose value if:
- An issuer defaults
- Liquidity dries up
- Extreme market conditions require the fund to apply liquidity fees
- A stable-NAV fund’s share price falls below $1 (“breaking the buck”)
The best-known example occurred in 2008 with the Reserve Primary Fund. Since then, regulatory reforms have significantly enhanced the resilience of MMFs.
Benefits of money market funds
Money market funds blend stability, liquidity, and yield.
Key advantages
- Higher yields than many savings accounts
- Easy access to cash (T+1 settlement common)
- High credit quality and regulatory oversight
- Useful for emergency savings or short-term goals
- Excellent for operating and reserve cash in businesses
Risks of money market funds
While generally safe, MMFs are not risk-free.
Primary risks
- Not FDIC insured
- NAV fluctuations in floating-NAV funds
- In periods of severe market stress, certain money market funds may impose liquidity fees on redemptions under Rule 2a-7’s updated framework. The SEC has removed the prior redemption gate mechanism tied to weekly liquid-asset thresholds
- Yields decline quickly when interest rates fall
These risks are small but essential for compliance and investor understanding.
How to choose the best money market fund
Finance teams should evaluate money market funds based on:
1. Fund category
Treasury, Government, Prime, or Tax-Exempt funds each have different risk and liquidity profiles. Prioritize safety for operating reserves, yield for longer-term cash, or tax efficiency if applicable.
2. NAV structure
Stable NAV is simpler for accounting and best for operating cash. Floating NAV requires daily tracking but may offer slightly higher yields.
3. Expense ratio
Lower expenses increase net yield. Compare expense ratios across similar fund types—even a 0.10% difference compounds significantly over time on large cash balances.
4. Liquidity profile
Check daily and weekly liquid-asset percentages. Higher percentages mean faster access to your cash during market stress—look for funds that exceed regulatory minimums (25% daily, 50% weekly).
5. Settlement timing
Most MMFs settle T+1; some offer same-day liquidity. Consider your operational needs—if you frequently need cash for payroll or urgent payments, same-day access is worth evaluating despite potential cost differences.
6. Minimum investment
Retail minimums are typically low; institutional minimums may be higher unless accessed via treasury platforms. Treasury platforms often pool investments to meet institutional minimums, giving businesses access to higher-yielding institutional funds without needing millions in a single fund.
7. Operational compatibility for businesses
- Automated sweeps
- ERP and treasury-system integrations
- Consolidated reporting
These features reduce manual work and reconciliation errors—critical when managing multiple accounts or moving cash frequently between operating accounts and investments.
Money market funds for businesses and startups
This is where modern finance teams gain a strategic edge.
Startups, scale-ups, and enterprise teams increasingly use MMFs to:
- Earn a higher yield on operating cash
- Maintain liquidity for payroll, vendors, and tax payments
- Automatically invest idle cash without manual movement
- Improve visibility across balances and cash flows
- Manage cash after raises or significant customer prepayments
Why MMFs work well for business cash management
Money market funds offer a unique combination of liquidity, yield, and safety that makes them especially useful for finance teams managing operating and reserve cash.
- Yields adjust quickly with changes in short-term interest rates
- Cash remains accessible, often with T+1 or same-day liquidity depending on the platform
- Diversified exposure across high-quality issuers reduces concentration risk
- Easy integration with treasury systems, ERPs, and spend platforms
Most providers stop at giving businesses access to MMFs.
Ramp Treasury goes further by automating the entire cash-optimization workflow, helping finance teams earn yield on idle cash without manual movement, monitoring, or reconciliation.
Optimize operating cash automatically with Ramp Treasury
Money market funds are a powerful way to earn yield on liquid cash. However, managing them manually — across accounts, balances, and timing — is inefficient and prone to error. Ramp Treasury automates the entire process.
With Ramp Treasury, finance teams can:
- Automatically move eligible idle cash into money-market-fund investments
- Maintain next-day liquidity for redemptions (subject to fund/platform rules)
- Centralize treasury reporting across cards, Accounts, and AP
- Eliminate manual cash sweeps and reconciliation work
- Turn operating cash into a strategic asset — not a static balance
Securities products offered by Apex Clearing Corporation, member FINRA/SIPC. The Ramp Investment Account is not a deposit, is not FDIC insured, and may lose value.
Ramp Business Corporation is a financial technology company and is not a bank. Bank deposit services provided by First Internet Bank of Indiana, Member FDIC. Customers with a Ramp Business Account can use the ICS service provided by IntraFi Network LLC. Subject to the terms of the applicable ICS Deposit Placement Agreement, First Internet Bank of Indiana, member FDIC, will place deposits at FDIC-insured institutions through IntraFi’s ICS service. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. To meet the conditions for pass-through FDIC deposit insurance, deposit accounts at FDIC-insured banks in IntraFi’s network that hold deposits placed using an IntraFi service are titled, and deposit account records are maintained, in accordance with FDIC regulations for pass-through coverage. Deposits are insured by the FDIC up to the maximum allowed by law; deposit insurance only covers deposits in the Ramp Business Deposit Account in the event of the failure of the FDIC-insured bank.
Securities products and brokerage services are provided by Apex Clearing Corporation. Apex Clearing Corporation is an SEC registered broker dealer, a member of FINRA and SIPC, and is licensed in 53 states and territories. FINRA BrokerCheck reports for Apex Clearing Corporation are available at: brokercheck.finra.org. The Investment Account is not a deposit product, not insured by the FDIC, and may lose value.
1. Get up to 2% in the form of annual cash rewards on eligible funds in your Ramp Business Account. Cash rewards are paid by Ramp Business Corporation and not by First Internet Bank of Indiana, Member FDIC. Cash rewards are subject to change. See the Business Account Addendum for more information.
2. Before investing in a money market fund, carefully consider the fund's investment objectives, minimum investment requirements, risks, charges and expenses, as described in the applicable fund's prospectus. You may obtain a copy of the fund prospectus here. Yield rate is the current effective annualized 7-day rate for the Invesco Premier U.S. Government Money Portfolio fund (FUGXX), and is variable, fluctuates, and is only earned on cash invested into money market funds in the Ramp Investment Account. Market data provided by and copyright © 2025 Nasdaq, Inc. All rights reserved. Past performance is not indicative of future results. Investing in securities products involves risk of loss, including loss of principal. This is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied.
3. Earnings calculated based on the national average rate on interest checking accounts of .07% published by the FDIC as of 12/16/24, and an earn rate of 2% offered and paid by Ramp Business Corporation on the Ramp Business Account. This comparison is between the bank interest rate and the Ramp Business Account earn rate, paid in the form of cash rewards.
4. Ramp Bill payments are subject to their own terms and conditions here.
FAQs
No. They are SEC-regulated investment products, not bank deposits.
Most MMFs settle redemptions in one business day (T+1).
They can, especially floating-NAV funds, though losses are rare.
When a stable-NAV fund’s share price falls below $1.00 — extremely uncommon after SEC reforms.
Treasury and government MMFs generally offer the highest stability.
Higher yield on idle cash, operational liquidity, and automated treasury workflows.
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