Money market mutual funds are supposed to be a safe place to stash your cash and get a better return than a savings bank account. But lately some investors have been questioning just how safe they really are.

While most of the nearly $3 trillion in these funds is held in things like Treasury bills and certificates of deposit, many also hold short-term commercial paper that, while highly-rated, is backed by some pretty risky assets -- including subprime mortgages.

Asset-backed commercial paper, or ABCP, is typically issued by special purpose vehicles set up by hedge funds, private equity firms and investment banks. The conduits use the proceeds of this paper to buy various kinds of securities that serve as collateral.

The maturities of ABCP -- up to 270 days -- are much shorter than the maturities of the assets that serve as collateral, so issuers typically rely on the proceeds of newly issued commercial paper to pay down previously issued commercial paper as it matures.

This process is referred to as "rolling" the commercial paper.

Rising defaults on subprime mortgages have roiled the capital markets as hedge funds and other big mortgage investors sell other assets to raise cash. As a result, ABCP programs have been receiving more scrutiny, even if the mortgages they hold aren't troubled, or they don't hold any mortgages at all.

As a result, it became difficult last month for a few of these programs to roll commercial paper over by issuing new commercial paper. When this happened, the programs had no choice but to extend the maturity of the outstanding paper, hoping to roll it over when the market stabilized.

That means the investors didn't get their principal on the date they expected, although they continued to receive interest payments.

According to Sheila Bair, chairman of the Federal Deposit Insurance Corp., who testified about the broader mortgage crisis before the House Financial Services Committee last week, there were only a few ABCP programs that opted to extend maturities. But the events were unprecedented, and they received a lot of publicity.

Eventually, it became more difficult for almost any ABCP program to issue new paper, even if it wasn't backed by mortgages. Liquidity dried up, maturities shortened and spreads widened.

Just to be clear -- no money market mutual funds have taken a hit a result of the ABCP crisis. Your investments are still secure; you won't lose any principal. Your fund's yield might be a bit lower than it would have been otherwise -- the average yield on taxable the money market funds dipped to 4.52% near the end of August from 4.76% earlier in the month, although it was back at 4.71% by Sept. 4, according to iMoneyNet.

But the bottom line is you can get your money out at any time.

While money market funds are not risk-free, their exposure to commercial paper backed by subprime mortgages is limited, and a number of funds that held it have been selling over the past few weeks.

"Of the total dollars in prime money market funds, around 40% are in asset backed commercial paper and a small part of that is in subprime commercial paper," says Connie Bugbee, managing editor of iMoneynet, one of the oldest providers of data on money market funds.

Not only do money market funds hold highly-rated short-term paper, their holdings are also highly diversified, according to Bruce Bent, the founder of the first money market fund, the ( RFIXX) Reserve Primary Fund(RFIXX). Money market funds can't hold more than 5% in any one investment and no more than 5% of the entire portfolio can be invested in illiquid instruments. The Reserve Primary Fund has no commercial paper backed by subprime mortgages.

Even if the subprime mortgages backing commercial paper were to go bad, the lower-rated tranches of paper issued by these programs would take the hit first. This higher-yielding paper is bought by hedge funds and other investors who want to take on the additional risk -- not money market funds.

(If you have a money market account with a bank it could have more direct exposure to subprime mortgages, particularly if it yields near 5%. Bank money market accounts aren't subject to the same investment strictures as money market mutual funds. But these accounts are backed the Federal Deposit Insurance Corporation, or FDIC, for amounts up to $100,000.)

Finally, money market fund sponsors would be loath to let investors lose principal. These funds sell for a dollar a share, and in the past, funds that have lost money have made investors whole rather than "break the buck."

"I don't think anyone would let (their money market fund) go below $1," says Jeff Tjornehoj, a senior research analyst at Lipper. "That would be a disaster from a public-relations perspective."

Nevertheless, the ABCP crisis appears to have spooked retail investors, who yanked $8.58 billion out of government retail funds and $10.90 billion out of all taxable retail funds during the week ended Sept. 3.

"People don't understand how money market funds work, and a lack of response from the big fund companies doesn't help," says Peter Crane, president of Crane Data, which tracks money market mutual funds and publishes the monthly newsletter Money Fund Intelligence.

"These funds could sustain a 20% loss on an individual security and still pay the $1 share prices," says Crane. "They have multiple layers of protection. People tend to confuse a loss in the money fund with a loss that actually threatens the $1 net asset value. Even if the entire subprime segment was knocked out, money funds could withstand it without breaking the buck."

That doesn't mean money market funds have lost their status as a safe haven for cash, however.

Outflows from retail investors were more than offset by inflows from institutional investors, who deposited about $19.5 billion into taxable funds, sending money-market mutual fund assets to a record-breaking $2.733 trillion for the week ended Sept. 3, according to Money Fund Report, a service of iMoneyNet.

Overall, for the four weeks ended Sept. 4, money market funds raked in $186 billion inflows.