What you need to know about using money market fund for short term saving

As the banks and insurance companies lower their interest rate on their savings product, it is only natural that we would want to look elsewhere for higher returns on our short-term savings.

In my previous article: Ultimate Short-Term Saving Guide, we’ve explored a comparison, the pros and cons of each short-term saving instrument.

In this article, I would like to share with you why I am using a money market fund to park the majority of my short-term savings and what do you need to know about it as an instrument class.

What is a money market fund?

A Money Market Fund is an investment fund that invests in highly liquid, short-term instruments. The instruments that the fund would invest in usually includes high-credit-rating debt-based securities with a short-term maturity.

Essentially, what the fund does is that they take your money and lend it to established companies that are deemed to be safe.

Typically, the duration of the loan last about 1 to 2 years and at the end of the duration, the borrower will pay back the loan amount in full.