<prompt> Human: Is it just a fancy term for a savings account? The definitions I find are pretty loosey goosey about the specifics of how they work. Am I just obtuse about this particular term?  <response>: For practical purposes, most people think of MMF, like you said, as a fancy term for a savings account. Sellers of the products banks and brokers dont do a whole lot to dissuade people from that notion, but in reality there are differences.In the case of a savings account, your principal and interest are guaranteed by the bank and that guarantee is backstopped by the FDIC. Because this makes your savings account functionally equivalent to something like a 1-day T-bill, two related things result. 1 The risk in a savings account is basically zero, and 2 the yield is very low.In the case of a money market fund, your investment is placed into a special kind of mutual fund which only holds short term commercial paper. You are at risk if those holdings decline in value, so the yield is always going to be higher than in the case of a savings account. Having said that, there have only ever been two MMFs which have actually lost money, and all said and done they are very safe. However, be mindful for that reason that they are not cash equivalent in the absolute strictest sense of the term, but they are the closest you are going to get outside of a bank and many people treat them as cash without much in the way of consequences.As to how they actually function - big companies often need cash for working capital, and instead of tapping credit lines, issuing bondsequity, or what have you, they just go into the market and sell anywhere from 30-360 day IOUs at a slight discount to face value. So if they need a million bucks today, they will go into the market and sell a 1,000,000 IOU for say, 990,000. You put your money into a fund that buys a bunch of those IOUs from a wide variety of companies.Its probably relevant to point out that there have also recently been a few rule changes which complicate the situation. 1 SEC now restricts what maturities MMFs can hold i.e. they are now regulated to be frontshort-loaded. 2 They must now hold more Tier 1 paper, which means they can no longer allocate as much of the cash to riskier sellers. 3 There is now a kill switch in the funds: if they get too many redemptions i.e. a run they can freeze it to liquidate the fund in an orderly manner. The net result of these changes is that yields will be lower going forward than they have been in the past for MMFs, but they will be safer as well. We dont really know what the consequences are if one has to freeze because we havent seen it happen, but last time we had a money market crisis it was not pretty - although it should be noted that most if not all of the funds invested in MMFs were returned, it just wasnt pretty for issuers of IOUs who suddenly didnt have buyers. 