Money market
a.k.a. Money markets, Cash market
The market for very short-term borrowing and lending, such as treasury bills, usually for a year or less.
The money market is where governments, banks and companies borrow and lend for short stretches, from overnight up to about a year. Think treasury bills, commercial paper and bank deposits.
Returns follow interest rates closely, so they jump when a central bank hikes and shrink when it cuts. Money market funds are popular places to park cash, though they are not the same as an insured bank account and are not risk-free.
A three-month treasury bill
- You buy a bill with a $10,000 face value for $9,880.
- Three months later it pays out $10,000.
- You earn $10,000 − $9,880 = $120.
Bottom line: The return comes from buying below face value, not from a coupon.
Assuming a money market fund is identical to a savings account. The protections can be very different.
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