Client Question: Money Market Funds & Liquidity

September 13, 2023

There was a time a few years ago when money market funds were an afterthought. With interest rates near zero, there was little to no need to consider investing in a money market fund (as you earned the same (almost zero) interest rate just staying put in cash). Times have changed and as of present day, interest rates on money market funds can exceed that on “pure” cash in an investment account by almost 5%. Given that, the use of money market funds has justifiably skyrocketed.

There are a lot of things to keep in mind when investing in money market funds – you can read our prior posts on this subject here and here. One key item to keep in mind is liquidity. I’ve gotten a few questions on this during the past week (as quarterly tax estimates were due and cash was needed!) so let’s do a quick refresher on this aspect of money market funds.

Money market funds are a type of mutual fund. As is the cash with all mutual funds, a money market fund gathers cash from investors and then invest those collective funds into a variety of underlying investments consistent with the agreed-upon parameters of the mutual fund.

In the case of money market funds, these investments are very short-term cash and cash equivalents, such as t-bills, commercial paper, and repurchase agreements. By exchanging the liquid cash in your brokerage account for shares of a money market fund (that is then investing in higher-yielding cash equivalents), you are then able to earn a higher rate of return on your cash balances.

Since money market funds are mutual funds, it’s important to remember they are not immediately liquid (meaning they can not be converted back into cash and withdrawn instantly). Instead, they trade like all other mutual funds – once per day after market close. This is due to the fact that the underlying investments in the mutual fund need to be valued in order for the mutual fund itself to be valued. This process is completed once per day after the 4pm eastern market close.

As a result, if you wish to redeem part or all of your money market fund into cash (for withdrawal or investment in another security), you need to place a sale order. That sale will settle that same afternoon (when all mutual fund trades are cleared) and the cash will be available in the account the next morning.

As you can see, money market funds are easily converted into cash – however, it isn’t instantaneous – there is a one day process that you must go thru so plan accordingly!

Leave a note



Not sure what step to take next?  No problem -send us a message using this form and we'll be in touch soon to figure it out - together

Reach out

Hope to hear from or see you soon. In the meantime, travel on!


Your message has been sent. We'll be in touch shortly.

Thank you.

Follow us on Instagram