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Cash and money market funds
Money funds since 1971· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
Cash holdings, meaning bank deposits, T-bills and money market funds, are the safest, most liquid asset class and earn short-term interest rates.
See it on the Money & Finance map →How it works
A money market fund pools savers' money into very short, high-quality IOUs, such as T-bills, repurchase agreements and commercial paper, and aims to keep a $1 share price. The first, the Reserve Fund, opened in 1971, when caps on bank deposit rates left savers earning little. Yields follow the Fed's policy rate: near zero in 2021, about 5% in 2023–24. US money fund assets reached about $7 trillion in 2025. They are not FDIC-insured. Individuals can also buy T-bills directly at TreasuryDirect.
Why it matters
Cash is dry powder and a shock absorber: it never falls in dollar terms, but inflation quietly erodes it.
Think of it like
Like a property's operating reserve: it earns little, but covers a vacancy or a new roof without forcing a sale.
Facts, rules and data
Investment Company Institute weekly asset data; SEC Rule 2a-7, which governs money funds; and the record of the Reserve Primary Fund 'breaking the buck' in 2008.
Debates and risks
Whether money funds still pose run risk: they needed rescues in 2008 and March 2020, prompting SEC reforms in 2010, 2014 and 2023.
Connections (3)
▸Shadow banking: credit outside the banking system includes the money funds in Cash and money market fundsFact, law or data
The connection
Money market funds behave like bank deposits, promising $1 shares on demand, but invest in short-term IOUs without deposit insurance, which makes them a core shadow bank. When Lehman failed in September 2008, the Reserve Primary Fund fell below $1, sparking a run that froze corporate borrowing until the Treasury guaranteed money funds.
When and why
September 16–19, 2008, in New York and Washington; runs on prime funds struck again in March 2020, when the Fed opened an emergency lending facility for them.
How we know
SEC and Financial Stability Board reports classify money funds as nonbank intermediation, and SEC reforms in 2010, 2014 and 2023 targeted their run risk.
Debates and risks
Whether the 2023 reforms, including liquidity fees and larger cash buffers, end run risk, or whether money funds still rely on an implicit government backstop.
▸Treasury bills (T-bills) are a core holding of Cash and money market fundsFact, law or data
The connection
Government money funds hold mainly T-bills and repo loans backed by Treasuries, so their yields track the fed funds rate. When the Treasury issues more bills, money funds are the biggest buyers. Individuals can skip the fund and buy bills directly at TreasuryDirect or a brokerage; the interest is free of state income tax.
When and why
T-bills since 1929, money funds since 1971; after the June 2023 debt-ceiling deal, money funds absorbed much of a surge in new bill issuance.
How we know
Money funds' monthly portfolio filings to the SEC (Form N-MFP) and Treasury auction data show the holdings; Rule 2a-7 limits funds to short, high-quality debt.
Debates and risks
How heavily the Treasury can lean on bills without strain, and how a debt-ceiling standoff would hit funds holding bills due near the deadline.
▸The Fed's overnight reverse repo facility (ON RRP) took in up to $2.55 trillion from Cash and money market fundsFact, law or data
The connection
In 2021–22, pandemic stimulus and Fed bond buying left money market funds with more cash than T-bills to buy. Rather than accept near-zero private rates, they lent overnight to the Fed at the RRP rate. Usage peaked at $2.55 trillion on December 30, 2022. Investors in government money funds were, in effect, lending to the Fed.
When and why
Peaked December 30, 2022; the biggest users were large fund families plus government-sponsored enterprises such as the Federal Home Loan Banks.
How we know
New York Fed daily operation results and money funds' monthly holdings reports to the SEC (Form N-MFP).
Debates and risks
Whether the facility pulled deposits away from banks, adding to the 2023 regional bank stress, is debated.