Are money market funds covered by deposit insurance?

No. Unlike bank deposits, money market funds are not insured by the FDIC (US) or CDIC (Canada). However, they are generally considered extremely safe because they invest in short-term government debt or hold cash in high-interest deposit accounts.

How is the interest from a money market fund taxed?

For Canadian investors, the monthly distributions from cash-like ETFs (like CASH.TO) are generally treated as interest income, meaning they are taxed at your full marginal rate unless held in a registered account (TFSA/RRSP).

Is a money market fund better than an HYSA?

It depends. Money market funds are highly convenient if you already use a brokerage and don't want to transfer cash to an external bank, and they often offer higher rates than standard HYSAs. However, they lack deposit insurance and take a day or two to settle when sold.

Money Market Funds Guide

High Yields Without Leaving Your Brokerage

Managing cash doesn't always mean dealing with retail banks. If you have a significant amount of money sitting idle in a brokerage account between investments, moving it to a high-yield savings account and back can take days and create a massive administrative headache. The solution? Money Market Funds.

What is a Money Market Fund?

A money market fund is a type of mutual fund or Exchange-Traded Fund (ETF) that invests in highly liquid, short-term debt instruments. Its primary goal is to maintain a stable net asset value (NAV) while paying out monthly interest based on prevailing central bank rates.

In Canada, there has been a massive surge in "High-Interest Savings Account (HISA) ETFs" like CASH.TO (Horizons) or PSA (Purpose). Rather than buying government bonds, these ETFs literally just deposit the pooled investor money into wholesale banking accounts that pay a higher institutional interest rate than a retail consumer could ever get.

Money Market Funds vs. HYSA

If both a High-Yield Savings Account (HYSA) and a Money Market ETF pay roughly the same interest rate, why choose one over the other?

The Case for Money Market ETFs

Brokerage Convenience: If you sell a stock and don't want to reinvest immediately, you can buy a money market ETF right there in the same account to instantly start earning interest.
Registered Account Access: It is difficult to get high HYSA rates inside a TFSA or RRSP at traditional banks. You can hold a cash ETF inside your registered brokerage account easily.
Institutional Rates: HISA ETFs often track the Bank of Canada overnight rate very closely, reacting faster than retail banks.

The Case for an HYSA

CDIC / FDIC Insurance: Money in a bank account is legally insured against bank failure up to a certain limit. Money market ETFs do not have this legal guarantee (though the underlying banks they deposit into do, but the structure is different).
Immediate Liquidity: You can pay a bill directly from an HYSA via e-Transfer or debit. Selling an ETF takes a couple of days to settle before you can withdraw the cash to your checking account.

Tax Treatment of Money Market Funds

Don't let the term "ETF" fool you. In Canada, the monthly distributions from HISA ETFs like CASH.TO are classified as Interest Income, not capital gains or eligible dividends.

This means if you hold these funds in a non-registered (taxable) account, the income is fully taxed at your highest marginal tax rate. For high-income earners on the path to FIRE, this can severely diminish the after-tax return.

Because of this tax treatment, money market funds are best held inside tax-advantaged accounts like a TFSA or RRSP, or compared closely against the after-tax returns of Treasury Bills or corporate bonds.

Where do they fit in a FIRE Strategy?

Money market funds are perfect for holding your "dry powder"—cash you intend to invest but are holding back for tactical reasons, or cash generated from dividends inside your brokerage.

However, for your core emergency fund, a traditional HYSA or a GIC ladder often provides slightly better legal protections and easier, immediate access.

Read our overarching guide to see how these funds stack up against all the other options in our Cash Savings Compared overview.