Money market securities are short-term debt instruments that mature in one year or less, issued by governments, corporations, and financial institutions to raise cash quickly
Unlike a money market account (which is a savings product at a bank), money market securities are actual tradeable investments. When you buy one, you are lending money to a borrower who promises to pay you back with interest within months or weeks. The borrower uses the cash immediately; you get your principal back plus a small return when the security matures.
The most common types are Treasury bills (issued by the U.S. government), commercial paper (issued by corporations), and certificates of deposit sold on the secondary market. Because they mature so quickly and are backed by stable institutions, they carry very low risk — but also very low returns, typically lower than what a money market savings account offers.
Key Takeaways
- Money market securities are short-term loans you make to governments or corporations, repaid within one year, not savings accounts.
- Treasury bills, commercial paper, and banker's acceptances are the three main types, each issued by different borrowers for different reasons.
- You can buy them directly from the issuer or through a brokerage, and they trade on secondary markets before maturity.
- Yields vary by type and current interest rates, but are typically lower than money market savings accounts at the same time.
- The main trade-off is liquidity: you can sell before maturity, but the price may have moved against you.
Treasury Bills: The Safest Money Market Security
A Treasury bill (or T-bill) is a short-term debt obligation issued by the U.S. Department of the Treasury. The government sells them in terms of 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. You buy them at a discount to their face value — for example, you might pay $9,800 for a $10,000 bill — and receive the full face value when it matures.
The difference between what you pay and what you receive is your return. If you buy a 13-week bill for $9,800 and it matures at $10,000, you earn $200 on a $9,800 investment over three months. You can buy T-bills directly from TreasuryDirect.gov with no fees, or through a brokerage. Because they are backed by the U.S. government, they carry virtually no credit risk.
T-bills are highly liquid: you can sell them on the secondary market before maturity if you need cash, though the price you receive depends on current interest rates. If rates have risen since you bought the bill, you will receive less than face value when you sell early.
Commercial Paper: Corporate Short-Term Borrowing
Commercial paper is an unsecured debt instrument issued by corporations and financial institutions to fund short-term operations. Maturities range from 1 to 270 days, with most maturing in 30 to 60 days. Unlike Treasury bills, commercial paper is not backed by the government, so it carries more credit risk — the issuer could default.
Because of that risk, commercial paper yields are higher than T-bills of the same maturity. The difference in yield is called the credit spread, and it widens when investors worry about the issuer's financial health. You cannot buy commercial paper directly from most corporations; you must go through a brokerage or money market fund.
Commercial paper is less liquid than T-bills. If you need to sell before maturity, you may have difficulty finding a buyer, especially if the issuer's credit rating has fallen. During financial stress (like 2008), commercial paper markets can freeze entirely, making it impossible to sell at any price.
Other Money Market Securities: Banker's Acceptances and Repurchase Agreements
Banker's acceptances are short-term debt instruments used mainly in international trade. A bank guarantees payment on behalf of a customer, which reduces credit risk. They typically mature in 30 to 180 days and yield slightly more than T-bills but less than commercial paper, because the bank's may provide backs them.
Repurchase agreements (or repos) are a different animal: they are not really securities you hold, but short-term loans. You lend cash to a securities dealer, who gives you a Treasury or other bond as collateral and promises to buy it back at a slightly higher price in a few days or weeks. The difference is your return. Repos are extremely liquid and very safe, but yields are typically the lowest of all money market instruments.
Both are less common for individual investors than T-bills or commercial paper, and both require a brokerage account to access.
How Money Market Securities Compare to Money Market Accounts
A money market account is a savings product at a bank or credit union; a money market security is an investment you buy and sell. The key differences affect what you earn and how much risk you take.
| Feature | Money Market Account | Money Market Security |
|---|---|---|
| What it is | Savings account at a bank | Short-term debt instrument you own |
| Maturity | No fixed maturity; you can withdraw anytime | Fixed maturity (days to one year) |
| Liquidity | Instant (withdraw anytime) | Can sell before maturity, but price may move |
| FDIC insurance | Yes, up to $250,000 | No (except T-bills, which have no default risk) |
| Typical yield | Currently 4–5% (varies by bank) | Varies by type; T-bills currently 4–5%, commercial paper slightly higher |
| Best for | Emergency funds, short-term savings | Investors comfortable with fixed terms and price risk |
For most savers, a money market account is simpler and safer. You do not have to worry about selling at the wrong time or credit risk. For investors who understand the trade-offs and want to shop for the best yield, money market securities can offer slightly higher returns — but only if you hold them to maturity and do not need to sell early.
How to Buy Money Market Securities
The route depends on the type. Treasury bills can be bought directly from TreasuryDirect.gov with no fees or minimum investment. You set up an account, link a bank account, and bid in the weekly or monthly auction. You can also buy T-bills through any brokerage (Fidelity, Charles Schwab, Vanguard, etc.), though you may pay a small fee.
Commercial paper and banker's acceptances must be bought through a brokerage. You cannot buy them directly from the issuer. Call your brokerage or log into your account and search for the security by issuer name or ticker. Minimum investments vary but are often $25,000 or more for individual securities.
Alternatively, you can buy a money market fund, which is a mutual fund that holds a portfolio of money market securities. The fund handles the buying and selling, and you can withdraw your money anytime (though the fund's value can fluctuate slightly). Money market funds are simpler for small investors but typically yield less than buying individual securities.
Yield, Interest Rates, and When to Buy
Money market security yields move with the federal funds rate set by the Federal Reserve. When the Fed raises rates, new money market securities offer higher yields. When the Fed cuts rates, yields fall. If you buy a security and rates rise before maturity, the price of your security falls if you try to sell early — because new securities offer better returns.
The yield you see quoted is the discount yield (for T-bills) or the annualized yield (for commercial paper). These are not the same calculation, so compare apples to apples when shopping. A brokerage will show you the actual dollar return if you hold to maturity.
Because money market securities mature so quickly, the timing of your purchase matters less than it does for longer-term bonds. If you buy a 13-week T-bill, you will have your money back in three months regardless of what rates do. The main risk is if you need to sell before maturity and rates have risen.
Frequently Asked Questions
Can I lose money on a Treasury bill?
If you hold a T-bill to maturity, no — you will receive the full face value. If you sell before maturity and interest rates have risen, the price will be lower than what you paid, so you would lose money on the sale. The U.S. government will not default, so credit risk is zero.
What is the minimum investment for money market securities?
Treasury bills have no minimum through TreasuryDirect. Through a brokerage, minimums vary but are often $1,000 to $10,000 per bill. Commercial paper and banker's acceptances typically require $25,000 or more. Money market funds often have minimums of $1,000 to $3,000.
Are money market securities taxed differently than savings accounts?
Interest from T-bills is subject to federal income tax but exempt from state and local income tax. Interest from commercial paper and other money market securities is fully taxable at federal, state, and local levels. Money market account interest is also fully taxable. Consult a tax professional for your situation.
Should I buy individual money market securities or a money market fund?
Individual securities work better if you have a large amount to invest, want to lock in a specific yield, and can hold to maturity. Money market funds are better if you want flexibility, have a smaller amount, or want professional management. Funds typically yield slightly less because of fees, but offer more liquidity.
What happens if the issuer of commercial paper defaults?
You lose your principal. Commercial paper is unsecured, meaning there is no collateral backing it. During the 2008 financial crisis, some money market funds that held commercial paper suffered losses. This is why T-bills are safer — the U.S. government backs them.