Institutional Vs. Non-Institutional Money Market

by Mary Bauer

The term “money market” can be confusing because commercial banks apply it to deposit savings accounts that are fully FDIC-insured. In fact, the money market includes a whole range of financial instruments, most of which are uninsured and available only to institutional investors, although you may purchase shares through a mutual fund. A smaller number of uninsured money market funds are available for purchase by non-institutions, including private individuals.

Money Market Basics

Money market funds are short-term financial instruments -- usually ranging in maturity from less than 90 days up to one year -- that pose a lower risk than other products, such as stocks. These funds are not traded on the stock exchange. Essentially, they are loan arrangements that banks and corporations use to meet short-term cash needs -- to fund the purchase of goods for resale or raw materials for manufacturing, for example. Money market funds are part of the fixed income market and some financial gurus refer to them as “cash” because of their short maturity rates. There is a trade-off, however; along with low risk comes low yield. In early 2012, for example, the average money market yield was just 0.03 percent.

Institutional Funds and Investors

Institutional investors are the giants in the financial industry. They include governments, big businesses and very wealthy individuals. Certain commodities are available only to these high-dollar investors. For example, in 2010, 67 percent of the money market funds were institutional class instruments. These investors, however, often use money from others to finance their big-ticket trades. If you own a 401(k) plan or a mutual fund account, you probably hold institutional money market funds as a part of your portfolio. In essence, you and other small investors pooled your money and a company purchased institutional money market funds on your behalf.

Non-Institutional Funds

Non-institutional funds, also called retail funds, are for mid-size investors. As of 2010, these funds made up approximately 33 percent of the money market field. Retail funds are available for any investor to purchase, although stockbrokers also offer them as part of a portfolio. Unlike institutional money market funds, retail fund companies sell shares directly to private investors.


Money market funds include a variety of products. One example is Treasury bills, or T-bills, which are basically U.S. government IOUs -- a way to borrow money from the public. Bank certificates of deposit, commonly called CDs, also are money market funds. They may hold slightly longer maturity rates (up to five years in some cases) and they offer the advantage of FDIC insurance. When a company needs short-term funding for inventory purchases or to bridge the gap while waiting for payment from purchasers, it may issue a money market instrument called commercial paper. Although these loans are unsecured, they generally are quite safe because the financial solvency of a firm is usually predictable for the very short-term maturity of the loan, and only companies with high credit ratings issue them. Similarly, a banker’s acceptance is a money market credit line for financing imports or exports and is guaranteed by a bank.

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