Money market mutual funds are a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD).
They do not provide much potential for income or growth. However, they do seek to generate a small amount of return by loaning money on a short-term basis, anywhere from one day to up to a year. These loans are considered low-risk and earn the least for investors.
Money market mutual funds are liquid, which means you can take money out of them on short notice with no penalty (unlike a CD).
There are several different varieties of money market mutual funds:
Taxable: These are simply called "money market funds" if offered by a mutual fund company, or "money market accounts" if offered by a bank.
Government: These funds only make loans to national governments or agencies of those governments. Earnings are free from federal tax.
Municipal: These funds only make loans to various state and local governments and their agencies. The income from these funds is free from federal taxes.
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