Money Market Yield: Definition and Example

The money market yield is an annualized yield measure used for short-term money market instruments such as Treasury bills, commercial paper, and certificates of deposit.

It helps investors compare short-dated instruments on a more standardized basis, even when their quoted pricing conventions differ.

How It Works

Money market instruments often mature in less than one year, so yields are usually annualized from a short holding period.

Different conventions exist, which is why investors often compare:

• money market yield
• bank discount yield
• bond-equivalent yield
• effective annual yield

Worked Example

Suppose a short-term instrument earns a return equivalent to 1% over a 90-day holding period.

Annualizing that short return produces a money market yield that lets the investor compare it with other cash-like alternatives more directly.

Scenario Question

An investor says, “A quoted money market yield is the same as the actual dollar return I will earn over my exact holding period.”

Answer: Not necessarily. The yield is annualized for comparison, so the actual holding-period income depends on the time invested and the instrument’s convention.

Related Terms

• Money Market: Money market yield is one of the main ways short-term instruments are compared.
• Bond Equivalent Yield: Another annualized convention used to compare fixed-income instruments.
• Effective Interest Rate (Yield): Effective yield adjusts for compounding differences.
• Taxable Yield: Tax treatment still matters when comparing money market investments.
• Annual Percentage Yield (APY): APY is another way to express annualized return on short-term savings products.

FAQs