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What is better, a money market fund or a fixed interest fund?

I am in a 403(b) plan. I don't understand which is better, or when it is better to invest in a Money Market Fund or a Fixed Interest Account. What is the difference between the two and what is the rule of thumb when approaching these investment tools?

Public Comments

1. Money market funds (MMFs) hold short term securities, and the interest they pay is a function of short-term interest rates. As you may be aware, the current interest rates are at historic lows, and therefore the MMFs are paying hardly any interest at all. The advantage of MMFs is that you are not locked in; therefore when the interest rates do rise, you will automatically get higher interest. On the other hand, fixed interest accounts (as the name implies), pay you a fixed interest over a defined time period. The advantage is that you know what you will be getting after the period. The interest rates being offered by most financial institutions are low, but not as low as MMFs. I would suggest that you shop around, and get the best rate for a relatively short term (no more than 1 year). After your investment matures, compare the MMF and fixed interest rates, and reinvest accordingly.