A money market fund, according to the United States Securities and Exchange Commission, is the following:

A money market fund is a type of mutual fund that is required by law to invest in low-risk securities. These funds have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates. Unlike a “money market deposit account” at a bank, money market funds are not federally insured.

The reason that these mutual funds are low risk is in part because the value of each share should be maintained at or close to a dollar, but each share pays dividends.  By law a Money Market Fund should be invested in various ’safer’ investments such as government bonds and CD’s.   These funds are managed conservatively so the chances of losing money is lower.  Investors are not allowed to put the money into higher risk investments like options (another post on Options will be forthcoming).  Specific companies will offer different types of money market accounts.  For example Fidelity offers several different types: Taxable Money Market Accounts, Federal Municipal Money Market Accounts and State Municipal Money Market Accounts.  Vanguard currently has 11 money market funds within those funds it appears that state municipal funds are earning around three to four percent while other funds are earning up to five and a quarter percent (those numbers are as of this writing, you should do your own research on the funds and their performance).

Dave Ramsey recommends that folks put their emergency fund savings into a money market account that has check writing privileges and no fees. Assuming that these funds are liquid (which a check-writing enabled account would be) you should be able to transfer money in and out of the account as needed.  You may want to consider a high yield/high interest savings account as well if five percent is an acceptable amount of interest.

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