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Published: May 26, 2023 7 min read

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This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.


A few weeks ago, ahead of my first Eras Tour show, my TikTok “for you” page became overrun with videos of Taylor Swift fans making jewelry. She has a lyric that references friendship bracelets, so it’s become trendy to bring kindergarten-style bangles to her concerts and trade with other fans.

That’s all it took. I headed to Amazon and entered a fugue state. When I came to, I had paid $12 for a 5-pound box of beads.

You read that right: FIVE. POUNDS.

Do you know how many beads 5 pounds of beads is? Hint: It’s a lot. According to Google, 1 pound of beads is equal to roughly 1,800 beads, so multiply that times five and you get 9,000. Yes, there are at least 9,000 beads in my tiny Brooklyn apartment.

In retrospect, 5 pounds of beads is way too many beads, but I’m a sucker for a trend. Even in the personal finance world — and right now, tons of people are investing in money market funds. They’re having a moment, and I want to know why.

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Why are money market funds so hot right now?

I called Paul Deer, vice president, wealth private client at advisory organization Empower, to get the scoop. Deer started off with a definition: A money market fund is a type of mutual fund that invests in ultra-safe, cash-like products. (Notably, it’s different from a money market account, which is basically a savings account.)

Money market funds — also called money market mutual funds — typically invest in short-term debt, like U.S. Treasury bills, which are government-backed and low-risk. They’re also super liquid, meaning it’s “very easy to get your money in and out of them,” Deer says.

And, yes, money market funds have been extremely popular lately. In July 2021, they held about $5 trillion of assets. This month, they passed $5.8 trillion.

People have emphatically poured cash into them; during a *single week* in March, folks put $129.3 billion into money market funds.

Deer says there are two major reasons for the influx.

The first is that interest rates in general are on the rise, thanks to the Federal Reserve. The Fed has been hiking rates for about a year in an attempt to bring down inflation. Over the past decade, interest rates have been so low that products like money market funds “haven’t been very exciting,” Deer says.

But with the Fed raising rates, “that environment has changed.” They’ve suddenly become a lot more attractive, with average yields around 4.6%.

The second reason has to do with volatility and uncertainty.

In case you missed it, we saw the second- and third-largest bank collapses in U.S. history in March with the implosion of Signature and Silicon Valley banks. These were regional banks, and there were very valid factors that led to their shutdown, but nevertheless, a lot of Americans got spooked.

“​​It probably put a lot of people on edge about what they're doing with their cash or investments in general,” Deer says. “In a scary market environment, people will pull money out of the market and park it in cash-like investments, whether or not that's good for them.”

As I mentioned above, money market funds are generally considered safe. So when the banks went under and the public had a confidence crisis, investors sought them out as havens.

Rob Williams, managing director of financial planning at Charles Schwab, says it’s important to remember that money market funds, like other types of investments, have both pros and cons.

They can be a solid choice if I have a spending goal that’s a little ways away, Williams says, like if I don’t need to write a check today for a purchase but will soon.

But they are not perfect for every situation. For one, money market funds are not insured by the Federal Deposit Insurance Corporation, or FDIC, like many bank accounts are. (They are protected by the Securities Investor Protection Corporation, which works similarly, but there have been a handful of runs in the past.)

Their value also doesn’t rise and fall much.

So while they may be a good spot to park cash for a short period of time, they’re not going to provide much growth: “If inflation does what it has historically, and with inflation as hot as it is, you’ll probably just be losing buying power” over time, Deer says.

Williams suggests using money market funds as part of a larger strategy, perhaps as a stepping stone to the world of investing.

Once I’ve learned to reliably pay my bills, manage a bank account, built up an emergency fund and started investing for retirement, I might want to move some of my money into these funds.

“How do you use each of these investment tools together?” he says.

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The bottom line

Money market funds have a reputation for being safe. They are hot right now because the Fed has made them more attractive by hiking rates. That, combined with the fact that a lot of consumers feel nervous about the banking system because of what happened in March, has led to major inflows recently.

Though there are cons from a growth perspective, Williams says that “any cash investors don't immediately need, but want to preserve and get a little bit of income from” could be placed into a money market fund.

More from Money:

Money Market Accounts vs. Funds: What's the Difference?

Is My Money Safe in the Bank?

Why Can't the Government Just Print More Money?