The Securities and Exchange Commission recently passed new rules for money market funds effective in October 2016. “One requirement under the new rules is that the shares of money-market funds that cater to institutional investors and invest in corporate or municipal debt must float in value, like the shares of most other mutual funds. That’s a change from the stable $1-a-share value traditionally maintained by all money-market funds.” “Another big change is that all money-market funds that invest in corporate or municipal debt will be allowed to charge investors a fee to redeem shares when the funds are under pressure or temporarily block investors from withdrawing cash.”
“Money funds can be divided into three categories according to their investments: prime funds; ‘government’ funds, which invest in U.S. government and federal agency debt; and municipal funds, which invest in the debt of state and local governments.” Source: Prepare for New Money-Fund Rules by Kirsten Grind, The Wall Street Journal, March 8, 2015.
Money funds currently pay an average of 0.03% a year, or $3 on a $10,000 investment, not enough to keep up with inflation. The last time they paid more than 2% was in 2008. Money funds are best used as a temporary holding place for cash, but even then most online savings accounts pay more, but still less than 1%.