The Social Security trust fund refers to two accounts used by the U.S. Treasury to manage surplus contributions to Social Security. Each year, benefits and administrative costs are paid out of payroll-tax revenue, and whatever’s left over is stored in these two accounts. In 2020, the combined trust funds have a balance of about $2.9 trillion.

That doesn’t mean the Treasury is sitting on $2.9 trillion in cash. By law, any money leftover must be invested in special issue Treasury bonds. These special issues can only be redeemed by the federal government, not outside investors. Since they are not sold on the open market, they determine their interest rates by making comparisons to other bonds on the open market.

The difference between the special issue bonds in the Social Security trust funds and investments in any regular investment account is that the latter are actual collateral that can be sold to raise money.

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Think of it like this: If you own a share of Google stock, you can sell it at any time to another investor and receive cash because the stock is an actual asset that is traded all the time on the stock market. But Social Security’s trust fund works differently. If you tried to replicate its accounting style, you would attempt to sell that same investor an IOU that promised to pay them back from your future income. Chances are, you would probably come up empty. That is because your IOU doesn’t have anything physical to back it up.

In other words, the federal government has written itself an “IOU” for $2.9 trillion, promising that it will eventually come up with the money through future tax revenue or additional federal borrowing.

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And why are there two trust funds you ask? Because there are two types of benefits. The “Old-Age & Survivors Insurance” (OASI) trust fund pays for the benefits of retirees, their spouses, and dependents. The Disability Insurance Trust Fund (SSDI), on the other hand, pays benefits to workers who become disabled, in addition to their spouses and dependents.

When one account gets low, Congress transfers money from the other to shore it up and vice versa. That’s why most people use the terms “trust fund” and “trust funds” interchangeably.