What is the best type of investment fund for safety and interest income?
The best funds to consider for safety of principal along with interest income are 1) money market funds, 2) high-yield savings accounts and 3) stable value funds.
Let’s look into the details.
Money Market Funds
Money market funds (MMFs) are mutual funds that invest in short-term high-quality debt instruments like Treasury bills, repurchase agreements and commercial paper. They are typically available through brokerage firms and are widely used in retirement accounts and brokerage cash sweeps.
Positives:
- Liquidity: MMFs are very liquid and allow same-day access to funds, often with check-writing or debit capabilities.
- Higher Yields Than Banks: In higher and/or rising rate environments, MMFs often yield more than traditional bank and savings accounts.
- Diversified Holdings: Unlike a savings account, MMFs diversify across many short-term instruments.
Negatives:
- Not FDIC-Insured: MMFs are not protected by the FDIC, so there is some risk of loss, although this is historically rare.
- Market-Based NAV: Most MMFs maintain a $1.00 NAV (net asset value), but it is possible for them to “break the buck” and fall below $1.00 in extreme market conditions.
- Taxable Interest: Interest is typically taxable at federal and state levels (unless it’s a Treasury MMF, which is exempt from state and local income taxes, or a municipal MMF, which are exempt from Federal taxes — and state and local taxes if you live in the state).
High-Yield Savings Accounts
High-yield savings accounts (HYSAs) are FDIC- or NCUA-insured bank accounts offering significantly higher interest rates than traditional savings accounts. They're offered mostly by low cost online banks.
Positives:
- FDIC/NCUA Insurance: Up to $250,000 per depositor with full principal protection.
- Simplicity: Easy to open.
- Liquidity: Instant access to funds via transfers, often with no penalties or minimums.
Negatives
- Lower rates: Typically modestly lower interest rates than money market funds.
- Rate Variability: Unlike certificates of deposit (CDs), rates can change at any time, similar to money market funds. When interest rates fall, so do yields.
- Limited Transactions: Subject to federal regulations on monthly withdrawal limits.
Stable Value Funds
Stable value funds (SVFs) are insurance-wrapped investment funds, primarily available in 401(k) and other employer-sponsored retirement plans. They invest in short- to intermediate-term bonds and use “wrap contracts” to smooth out returns and maintain principal stability.
Positives:
- Principal Stability: SVFs are designed never to lose value, even in a falling market. They aim to maintain a constant $1/share value.
- Steady Yields: They typically offer 3–4.5% annualized returns, higher than most bank savings options.
- Low Volatility: Because of the insurance contracts, SVFs do not fluctuate like bond funds.
Negatives:
- Limited Access: Generally not available outside retirement plans like 401(k)s.
- Liquidity Restrictions: Withdrawals may be limited or delayed and fund providers may restrict large movements.
- Opaque Structure: Fees and holdings are often less transparent than in MMFs or savings accounts.
This chart shows that SVFs yields historically outpaced money market funds, although they are currently lower. When the Fed starts cutting rates materially, SVFs yields will likely return to beating MMF yields.
Conclusion
Money market funds are currently the best way to invest cash right now. They typically offer modestly higher yields than high yield savings accounts. Money market funds also currently offer higher yields than most stable value funds. They do not have FDIC insurance coverage, but that is almost never necessary.
However, if you have access to stable value funds through a retirement account, they are likely to be the highest yielding funds over time, particularly if yields fall, so keep them in mind.
Of course, higher returns -- particularly after inflation and taxes -- are usually available in stocks, bonds, commodities and cryptocurrencies, depending on their bull and bear market cycles.

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