How SMBs Use Money Market Funds for Treasury
For SMB owners sitting on a chunk of cash, the choice of where to park that money can mean the difference between earning thousands over the course of a year or earning almost nothing. Money market funds are one of the most common ways businesses generate returns on their reserves, and they sit at the center of how modern businesses build their treasury strategy.
A money market fund is a type of mutual fund that invests in short-term, high-quality debt like Treasury bills, repurchase agreements, and commercial paper. It's not the same as a "money market account" offered by your bank; rather, the fund pools investor money, buys a portfolio of short-duration securities, and passes the resulting interest through to investors.
In this guide, we'll explain how money market funds generate yield, compare them to the similarly named (and frequently confused) money market account, and explain how money markets are the main drivers behind corporate treasury accounts. You'll also see how business banking platforms like Slash plug money market funds directly into your financial stack, so SMBs can earn yield on idle balances without constantly moving cash between accounts.⁶ Alongside treasury, Slash offers FDIC-insured business checking, corporate charge cards earning up to 2% cashback, invoicing, bill pay, and more from a single dashboard.¹, ²
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What is a Money Market Fund?
Money market funds are fixed-income mutual funds that invest in short-term debt issued by governments, financial institutions, and corporations, typically with maturities under 397 days. The short maturity is what makes them function as cash equivalents: prices stay stable, liquidity is high, and the portfolio turns over quickly enough to reflect current market rates.
The core instruments inside a typical money market fund include U.S. Treasury bills and notes, government agency securities, high-grade commercial paper, municipal notes, bank obligations like certificates of deposit, and repurchase agreements (repos). Different fund types weight these differently: a government money market fund holds mostly Treasuries and agency securities, while a prime fund includes more corporate debt.
The goal of a money market fund is to preserve capital, maintain high liquidity, and provide a market-based yield that tracks short-term interest rates like the federal funds rate. Business investors generally access money market funds through a brokerage account, a corporate investment policy, or an integrated treasury account – not through a regular bank branch. Most funds settle same-day or T+1, which means a business can pull funds in the morning and use them to cover payroll or a vendor payment the next business day.
What Does a Money Market Fund Invest In?
- Commercial paper: A short-term unsecured debt issued by corporations and financial institutions, typically maturing in 1 to 270 days. Companies use it to fund near-term obligations, and money market funds buy it to pick up extra yield over Treasuries. A related instrument, asset backed commercial paper, is supported by specific assets rather than issued on an unsecured basis. Because it isn’t backed by collateral, it carries more credit risk than government debt.
- Repurchase agreements: Collateralized short-term loans backed by securities like U.S. Treasuries. One party sells securities to another with an agreement to buy them back at a slightly higher price shortly after (often overnight). Money market funds rely on repos heavily because they’re low-risk, predictable, and convert back to cash quickly.
- Treasury bills and notes: Short-term U.S. government debt issued at a discount and maturing in 4 to 52 weeks. They serve as the “risk-free” benchmark for short-term interest rates, and institutional government money market funds are often heavily invested in them.
- Bank obligations: Includes certificates of deposit, time deposits, and bankers’ acceptances issued by commercial banks. Some bank instruments can involve limits or penalties for early redemption, especially before maturity. Prime money market funds may hold these to diversify, while conservative corporate policies often favor government-only funds to minimize bank counterparty risk.
Money Market Funds vs. Money Market Accounts: What’s the Difference?
The names are confusingly similar, but a money market fund and a money market account are different products. A money market fund is a mutual fund: an investment product issued by a fund company and held in a brokerage or treasury account. A money market account is a bank deposit product, similar to a savings account, held at a bank. Here’s a breakdown of how the two compare:
The right place for your cash depends on when you’ll need it. Money you’ll spend in the next month (payroll, vendor payments, upcoming taxes) belongs in a checking account where it’s immediately available, FDIC-insured, and not subject to withdrawal caps. Cash you won’t touch for six to twelve months can go into a money market fund, where the higher yield is worth a slightly different risk profile and the money is still accessible within a day.
The standard in finance
Slash goes above with better controls, better rewards, and better support for your business.
The 4 Different Types of Money Market Funds Relevant to Businesses
The SEC categorizes money market funds into four main types, and each has a different risk and yield profile. Here’s how they compare:
Government Money Market Funds
Government money market funds hold U.S. government and agency securities plus repos backed by them. They have the lowest credit risk of any money market fund category and are often used as the default cash sweep option for corporate treasury programs.
Treasury Money Market Funds
A stricter subset of government funds: they hold only direct U.S. Treasury obligations and repos backed by Treasuries. The yield is slightly lower than a broader government fund, but the credit profile is essentially the U.S. government itself.
Prime Money Market Funds
Prime funds can invest in high-quality corporate and financial institution debt, including commercial paper and CDs. They typically offer slightly higher yields than government funds but carry more credit and liquidity risk. Institutional prime funds also use a floating NAV.
Municipal Money Market Funds
Municipal funds invest in short-term municipal securities issued by states, local governments, and municipal agencies, and the income is often tax exempt at the federal level. The tax benefit is usually more meaningful for high-tax individual investors than for most SMB entities.
What SMBs Should Know About Yield and Risk
Money market funds are tied to short-term interest rates and adjust quickly when the Federal Reserve changes the federal funds rate. That means money market fund yields are dynamic in a way that bank savings rates often aren't. Since there is some market variability involved with investing in money market funds, there are some questions that should be addressed before parking your treasury reserves in one:
Will my share price always be $1? For most retail government and Treasury money market funds, yes, in normal conditions. Institutional prime funds use a floating NAV that can move slightly above or below $1.00. In rare historical cases, funds have "broken the buck" during severe credit events, meaning their share price dropped below $1.00 and investors took a small loss.
How liquid is my cash? Very liquid. Most money market funds offer same-day or next-day settlement, which means a business can pull funds and use them for payroll or vendor payments within one business day. Cut-off times do apply: a request placed at 3 PM may not settle until the following business day.
What happens in a stress event? Government and Treasury funds tend to hold up well because their underlying holdings are U.S. government debt. Prime and municipal funds can experience more pressure in certain market environments. This is why many corporate treasury policies focus on government-only funds for the core of their reserves.
Integrating Money Market Funds into a Cash and Treasury Strategy
The most effective way to use money market funds is as part of a structured cash management framework. A common approach segments business cash into three buckets based on time horizon:
- Transaction cash (0–30 days): Stays in checking. Covers payroll, vendor payments, and taxes. FDIC-insured and immediately spendable.
- Operating reserve (1–6 months): Sits in a high-yield checking account or a money market fund with same-day liquidity. Covers unexpected expenses or short-term opportunities.
- Strategic reserve (6–18 months): Goes into a money market fund or broader treasury account. The yield difference compounds meaningfully at this duration.
As balances grow, it helps to write down a basic treasury policy: which types of funds you'll use (for example, government-only), how much can sit in any single fund, and how often you'll review the numbers. The goal is to keep founders and finance leads in control of where cash sits and why. For an SMB sitting on cash today, the practical move is to review current bank balances this quarter, decide how much belongs in each bucket, and implement the split through a treasury provider.
Slash can make it easier to streamline financial management by keeping treasury alongside operating accounts, card management, and other financial tools in a single dashboard. Businesses can move excess cash into institutional government money market funds managed by Morgan Stanley and BlackRock, earning up to 3.77% annualized yield, and pull it back with same-day to next-day liquidity when funds are needed for payroll, vendors, or card spend.
How to Evaluate a Money Market Fund for Your Business
Picking a money market fund isn't as simple as chasing the highest yield. Here’s a practical checklist for choosing the right provider:
- Fund type: Government or Treasury funds are the standard for capital preservation. Prime funds may make sense for businesses comfortable with slightly more credit exposure.
- Underlying holdings: A good provider publishes the portfolio composition and weighted average maturity (WAM). A shorter WAM (under 60 days) means the fund adjusts to rate changes faster.
- Fees and expense ratio: Institutional money market fund expense ratios are typically 0.10% to 0.20%, but they directly reduce your yield. Check the net yield, not the gross.
- Manager track record: Has the manager navigated past rate cycles and stress events without breaking the buck? Large institutional managers like BlackRock and Morgan Stanley have long track records that are easy to research.
- 7-day yield: The annualized income the fund has generated over the last seven days. It's the standard comparison metric for money market funds and moves faster than savings APY as rates change.
- Operational fit: Settlement speed, minimum investment, integration with your existing treasury system, and how quickly funds convert to cash for payroll may matter more than a few basis points of extra yield.
Modern Treasury for Growing Businesses from Slash
Money market funds work best when they're easy to use, and that's where an integrated treasury platform pays off. Slash lets businesses move excess cash into institutional government money market funds managed by Morgan Stanley and BlackRock, earning up to 3.77% annualized yield, with same-day to next-day liquidity to pull funds back when needed. There's no minimum balance to get started, so eligible businesses can start earning on idle cash from day one.
Slash keeps treasury alongside FDIC-insured checking, corporate cards earning up to 2% cashback, invoicing, bill pay, and the rest of a business's financial stack in a single dashboard. Multi-entity support lets founders manage several businesses from one login, and consolidated reporting makes it easy to see balances, yields, and cash movement across every account.
Slash also offers a broader set of financial tools designed to simplify how your business manages its money:
- Slash Visa® Platinum Card: Set customizable spending controls and issue unlimited virtual cards for team expenses, vendor payments, and subscriptions. Earn up to 2% cashback on business card purchases.
- Native cryptocurrency support: Send and receive USDC and USDT across eight supported blockchains for faster, lower-cost global payments.⁴
- Diverse payment methods: Virtual card payments, global ACH, international wires to 180+ countries via SWIFT, and real-time domestic payments through RTP and FedNow.
- AP & AR Tools: Create and send invoices directly from your dashboard, collecting payment from customers via card, bank transfer, or crypto. On the payables side, Slash's bill pay reads your outstanding invoices and prepares payments based on stated terms, so nothing falls through the cracks.
- Flexible financing: Access short-term financing with 30-, 60-, or 90-day repayment terms to bridge cash flow gaps.⁵
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Frequently Asked Questions
Are money market funds safe for business cash?
Money market funds are considered low-risk, especially government and Treasury funds backed by U.S. government securities. They aren't FDIC-insured, but they may carry SIPC coverage up to $500,000 when held in a brokerage account, and historical losses have been rare and small.
What's the difference between a money market fund and a high-yield savings account?
A money market fund is an investment product that holds short-term debt and passes market-based yields through to investors, while a high-yield savings account is a bank deposit with a rate set by the bank. Money market fund yields tend to move faster when interest rates change, while savings account rates often lag behind the market.
Treasury Account vs Savings Account: What's the Difference?
How much money should a business keep in a money market fund?
Most businesses use money market funds for cash they won't need in the next one to six months, including operating reserves and longer-term strategic reserves. Near-term obligations like payroll, taxes, and upcoming vendor payments are better kept in an FDIC-insured checking account where the money is immediately spendable.
Cash Flow Management: A Guide for Making Smarter Business Decisions
Can I lose money in a money market fund?
It's possible but uncommon. Government and Treasury money market funds are among the lowest-risk investments available, though in rare historical cases funds have "broken the buck," meaning their share price dropped below $1.00 during severe credit events. Prime and municipal funds carry slightly more risk than government funds because they hold corporate or municipal debt.
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