The Best Money Market Funds

A money market fund is one of the safest investments you can make. You won’t see big long-term growth like you might with a high-performing stock (the average money market fund increases in value by 1% to 3% a year), but your investment is likely to keep pace with inflation without the risks associated with stock trading. Most money market funds invest in cash or debt securities like certificates of deposit (CDs), government-backed U.S. Treasury bonds, or high-quality corporate debt. Overall, they’re a good place to park your cash since they pay a bit more than a standard savings or money market account while still being less volatile than the stock market.

The Best Money Market Fund Brokers

Broker Trade Fee Minimum Investment Features
Ally Invest $4.95 $0 Automated portfolio management
Charles Schwab $0 $0 Great customer service
E*TRADE $6.95 $500 Advanced mobile app
Goldman Sachs N/A N/A Large team of financial advisors
TD Ameritrade $6.95 $0 Good for all types of investors
T. Rowe Price $19.95 $2,500 Fund screening tools
Vanguard $7.00 $0 Variety of low-cost funds

What is a Money Market Fund?

A money market fund is a type of mutual fund that invests in short-term debt or cash securities to provide you with a modest but relatively predictable level of growth. A money market fund significantly less risky than stock trading, but slightly riskier than a savings account, since a savings account will never decrease in value. However, since a “healthy” inflation rate is around 2% per year, there’s a chance your savings account won’t keep up with inflation (unless you find one with a really high interest rate). Money market funds may earn you a bit more than a bank savings account, but will not dramatically grow in value like some stocks.

Money Market Funds vs. Money Market Accounts

It’s easy to confuse the two products, but there are major differences. As we noted above, a money market fund is an investment product closer to a mutual fund than a bank account. Since your cash is invested, money market funds are not FDIC-insured.

Money market funds usually perform better and pay a bit more interest (1% to 4%) than a money market account (around 1%). Money market fund shares are liquid and can be cashed out by buying and selling without any restrictions or penalties. Although they’re an investment vehicle, many money market funds come with check-writing privileges.

On the other hand, a money market account is a bank account similar to a savings account. Money market accounts are FDIC-insured and earn interest over time. They may be more restrictive than a money market fund, but are far more flexible than a CD. Some money market accounts come with check-writing and debit card privileges, but like savings accounts, they’re still limited to six withdrawals or transactions per month under federal law.

Money Market Funds vs. Mutual Funds

Money market funds and mutual funds are both a type of investment managed by a professional. The main difference between the two comes down to why you’re investing your cash, for how long, and with what tolerance for risk. Do you have a short-term goal or are you looking for long-term wealth? A money market fund is best for short-term goals like having an emergency savings fund that’s slowly and safely growing. A mutual fund is better when you don’t need the money for several years and want to see your investment grow; with a longer investment period, some mutual funds have a much higher threshold for risk and volatility than a money market fund.

Money market funds are more cost-effective because they don’t charge extra fees when you buy in or cash out. Mutual funds come with several fees, including an annual expense ratio fee, charged as a percent of the fund to cover administrative and management costs.

Money Market Funds vs. Index Funds

An index fund is a mutual fund with the goal of duplicating the performance of one of the stock market indexes like the S&P 500 or Nasdaq. Mutual funds, on the other hand, are custom portfolios that a manager believes will the market’s “index” performances. Index funds typically have lower fees than mutual funds and are designed for a shorter investment period than a mutual fund.

Although index funds may be lower risk and better for short-term investments than a mutual fund, a money market fund is still the best option if you don’t want to risk your investment and need access to your principal in the near future.

The Best Money Market Fund of 2019

Ally Invest

Ally Invest is an online trading platform that can offer better than average rates and lower fees because it doesn’t have the overhead of local bank branches. Its customer support is available via mobile app, phone, email, or chat. Ally Invest is geared towards beginners and they’ve built a good library of informative articles and advice to help new investors make the right investing decisions, including the right money market funds.

Charles Schwab

Charles Schwab has enough tools to work for investors of all levels. It’s one of the lowest-cost online brokers with no account minimum, no commission fee on funds within the Schwab portfolio, and sophisticated research tools that seamlessly integrate with their trading platform. The trading platform works effortlessly with its banking options to make managing your liquid accounts like checking, savings, and credit cards easy to access and integrate with your investment portfolio.

E*TRADE

Best for frequent traders, E*TRADE offers enough tools for a beginner investor or a seasoned, frequent trader through its three trading platforms. Frequent traders who make at least 30 trades per quarter receive reduced pricing of $4.95 per trade. The research library is impressive, featuring free access to live streaming market data, live market commentary, real-time quotes, analyst research, and more.

Goldman Sachs

Goldman Sachs Private Wealth Management is the bank’s investment management division with a team of 700 financial advisors. We only recommend Goldman Sachs for high net worth individuals with at least $10 million to invest.

TD Ameritrade

TD Ameritrade has low fees but provides a high level of service for investors. More than 350 branches are available for in-person support, or you can learn a lot from its research and trading library online. There are four trading platforms available and a feature that not many trading platforms offer — a virtual trading simulator. The simulator provides $100,000 in virtual money and access to a margin account. Investors can test their strategies before investing real money through this simulator with no risk.

T. Rowe Price

One of the largest selections of mutual funds available can be accessed through T. Rowe Price. Most are no-load, low-expense-ratio funds. Besides the high-value funds, its website has free tools to create and grow an investment portfolio. In addition to is mutual fund selection, T. Rowe Price’s free retirement tools are among the best in the industry.

Vanguard

Vanguard has a solid reputation for low-cost but high-performing mutual funds. Vanguard doesn’t have a trading platform, making it a better choice for long-term investors with a buy and hold strategy. Frequent traders may find Vanguard’s fee too pricey compared to online trading platforms.