When money market interest rates broke above 5% last year, it was a wake-up call for many investors who had grown accustomed to getting almost nothing for their money at banks.

Hundreds of billions of dollars flowed into the funds, which swelled in size month after month. Now that the Federal Reserve has begun cutting short-term interest rates — and money market funds have begun reducing their rates, too — you may expect that these funds would be less appealing.

But nothing could be further from the truth. The “wall of cash” in money market funds isn’t flowing into the stock market or other risky investments. It is, for the most part, staying where it is — and growing larger.

In fact, cash in money market funds has hit new peaks since Sept. 18, when the Fed reduced its benchmark federal funds rate by half a percentage point to a range of 4.75% to 5%. Meanwhile, rates for the biggest money funds tracked by Crane Data, an independent financial market research firm, have dropped to 4.68% from 5.06%. But $159.2 billion flowed into money funds overall through Oct. 17, putting their total assets at $6.794 trillion.

That’s good news, as I see it. It means the vast majority of investors are keeping their cash in safe, high-paying locations — getting far better yields than most bank accounts offer, and avoiding excessive risk-taking with money that they presumably can’t afford to lose in speculative bets. What’s more, if rates fall further, money market funds are likely to retain an advantage for months to come, because they continue to look better than the alternatives.

Why use them

The funds are popular because they are a fine spot for parking short-term cash. Your money is available whenever you want it, no strings attached. And the best low-cost money market funds are still providing a decent real return: more than 2%, after inflation.

This hasn’t always been the case. It certainly wasn’t true while the Fed held short-term rates near zero — a punishingly low level that was in place most of the time from autumn 2008 through the spring of 2022.

Those rates deterred many people, including me, from bothering with money market funds at all. Why take your money out of a bank account, which is insured by the Federal Deposit Insurance Corp., to put it into a fund that isn’t government insured and isn’t paying you much of anything?

In early June 2022, when money market rates were below 1% yet inflation was above 8.6% and rising, I realized that money market funds were about to become hot again. The Fed was raising interest rates to squelch inflation, and by early last year, short-term interest rates exceeded the annual rate of the consumer price index. Money market rates have paid a positive real return ever since.

Now, though, headlines are proclaiming that many interest rates are dropping. The Fed deems inflation sufficiently tame to be lowering short-term rates, and the fabulous yields of money market funds have probably peaked.

Even so, the substantial appeal of money market funds remains in place: Their rates are still positive in real terms, and they continue to compare favorably with most rates offered by banks, which have been dropping, too.

While it’s true that certificates of deposit at some banks offer competitive rates, they require that you lock up your money for a specified period or incur penalties. At the moment, short-term money market rates are higher than those of longer duration in the bond market: That’s the meaning of the statement that “the yield curve is inverted,” which is often repeated in financial coverage. As a result, you are unlikely to get as much interest from CDs or Treasury notes as you can now get in money market funds.

Not big moneymakers

Despite their advantages right now, money market funds haven’t been a good investment over the long haul. Actually, I’m not sure they are an investment at all.

Morningstar, a financial services company, ran the numbers for me. Here are the annualized returns for several important U.S. asset classes, as well as for inflation, from 1926 through 2023:

• Large stocks, like those in the S&P 500, 10.3%

• Small stocks, 11.8%

• Treasury bonds, 5.1%

• Treasury bills (a proxy for money market funds), 3.3%

• Inflation, 2.9%

In short, over long stretches, money market funds have barely kept up with inflation. If you can afford to take some risks with your money, start with bonds and then move to stocks, which have provided better long-term returns but often experience losses.

No flood into stocks

It’s often assumed that when the Fed lowers rates, people will pull cash out of money market funds and pour it into the stock market.

There’s scant evidence that this is happening or has.

“It’s not until rates fall below 3% that people start to pull money out of money market funds,” Peter G. Crane, a founder of Crane Data, said in an interview. “I don’t see that happening soon. And I don’t see any big movement from money market funds into the stock market.”

I’m a long-term investor, using index funds that track the world’s stock and bond markets, and I’m prepared to take short-term losses. My intention is to keep those holdings for many years and ride out market declines.

But that’s only for long-term holdings. For my ready cash, I use money market funds and expect to do so until the funds stop paying a reasonable interest rate. Eventually, when yields have dropped sharply, I’ll shift this money to a government-insured bank account where it will be safe, not to the stock market.

But the time for that migration hasn’t come yet. Right now, for ease, safety and a modest but reasonable return, high-quality money market funds still look all right to me.