As the year draws to a close, investors are navigating a new market dynamic shaped by the U.S. Federal Reserve’s decision to maintain the policy interest rate between 5.25% and 5.5%.
This shift marks a significant departure from the low-interest-rate environment of the previous decade and is prompting a reassessment of risk tolerance and investment strategies.
In this higher interest rate era, the allure of traditionally higher-risk income-producing assets like dividend stocks, bonds and real estate investment trusts, or REITs, is being reevaluated.
While these options have their merits, they come with inherent risks — market volatility for stocks, credit and interest rate risks for bonds, and real estate market fluctuations for REITs, to name a few. These risks can be particularly pronounced in uncertain economic times, leading investors to seek safer alternatives.
In an environment where risk-free cash equivalents are yielding upwards of 5%, money market funds stand out as an increasingly attractive option for managing cash allocations.
“Money market mutual funds are great investments for short-term, conservative investors,” says Nafis Smith, principal and head of taxable money markets at Vanguard. “This is because they typically invest in very liquid securities with the objective of preserving your capital while also providing income at prevailing market rates.”
Unlike plain cash, a money market fund earns and pays periodic interest income generated by its portfolio of underlying assets. These include high-quality, short-maturity fixed-income instruments such as Treasury bills, certificates of deposit, repurchase agreements and commercial paper.
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The result is a unique type of mutual fund that maintains a stable net asset value, or NAV, per share of $1, barring extreme market stress. By investing in a money market fund, investors can sidestep volatility while earning competitive yields.
“Money market funds can be a great way to save for short-term goals like buying a car, a down payment or building your emergency savings,” says Sophoan Prak, a certified financial planner and financial advisor at Vanguard. “Generally, if you have a planned expense within one year, a money market fund can be a good investment option for it.”
Here are seven of the best money market funds to buy today:
| Money Market Fund | Expense Ratio | 7-day SEC yield as of Nov. 21 |
| North Capital Treasury Money Market Fund (ticker: NCGXX) | 0.0% | 5.4% |
| Vanguard Federal Money Market Fund (VMFXX) | 0.11% | 5.3% |
| Vanguard Treasury Money Market Fund (VUSXX) | 0.09% | 5.3% |
| Vanguard Municipal Money Market Fund (VMSXX) | 0.15% | 3.5% |
| Fidelity Money Market Fund (SPRXX) | 0.42% | 5.1% |
| Schwab Value Advantage Money Fund — Investor Shares (SWVXX) | 0.34% | 5.3% |
| BlackRock Wealth Liquid Environmentally Aware Fund (PINXX) | 0.49% | 5.1% |
North Capital Treasury Money Market Fund (NCGXX)
The return potential of a money market fund can be evaluated by its seven-day SEC yield, a standardized measure of the average net interest income paid over the prior seven days after subtracting management fees. Therefore, one of the best ways to maximize yield potential from a money market fund is to keep fund expense ratios low. A great example is NCGXX, which is currently waiving expenses.
At present, NCGXX boasts an annual expense ratio of zero thanks to its waiver. Despite being an institutional class fund, retail investors can still access it thanks to its lack of minimum initial investment requirements. Currently, NCGXX is paying out a highly competitive 5.4% seven-day SEC yield. So far, the fund has attracted just over $15 million in assets under management, or AUM.
Vanguard Federal Money Market Fund (VMFXX)
Despite not having a non-existent expense ratio, VMFXX is still fairly affordable, charging just 0.11%. However, the fund has an immense economy of scale, and has attracted around $270 billion in total AUM since its launch in July 1981. As one of Vanguard’s oldest money market funds, VMFXX has managed to weather multiple market crashes and economic crises to survive to this date.
VMFXX is classified as a government money market fund, meaning that legally, the fund must hold at least 99.5% of its assets in government issued securities like Treasurys, cash or repurchase agreements collateralized by one or the other. The result is a high-quality portfolio of assets that currently pays out a decent 5.3% seven-day SEC yield. However, VMFXX does require a $3,000 minimum investment.
Vanguard Treasury Money Market Fund (VUSXX)
Vanguard also offers VUSXX as an alternative to VMFXX. This fund is fairly similar to VMFXX given that it is also classified as a government money market fund. As its name suggests, VUSXX’s portfolio is predominantly composed of Treasury bills or repurchase agreements collateralized by them. Practically speaking, the fund is functionally similar to VMFXX.
At present, investors can expect a slightly lower 0.09% expense ratio and similar 5.3% seven-day SEC yield. As an Admiral Shares mutual fund, VUSXX also requires a $3,000 minimum investment. One thing to keep in mind is that for investors buying VUSXX in a taxable account, the income from the repurchase agreements it holds are subject to state and local income taxes.
Vanguard Municipal Money Market Fund (VMSXX)
Just like how bond funds have tax-efficient variants in the form of municipal bond funds, so do money market funds. Alternatives like VMSXX can help investors save significantly on taxes, especially if they are investing in a taxable brokerage account and fall into a high-income tax bracket. “One of the benefits of investing in VMSXX is receiving federally tax-exempt interest income,” Prak says.
This unique money market fund holds a portfolio of short-term, municipal-issued fixed-income instruments exempt from federal income tax. Otherwise, it functions similarly by maintaining a stable NAV per share of $1 along with monthly distributions. Investors can expect a 0.15% expense ratio and a 3.5% seven-day SEC yield, along with the usual $3,000 minimum investment requirement.
Fidelity Money Market Fund (SPRXX)
Investors looking for another long-standing, well-capitalized money market fund with no minimum required investment can invest in SPRXX from Fidelity. This fund has been around since January 1989, and has attracted around $10 billion in AUM for its share class. On Fidelity’s platform, investors can buy SPRXX with no transaction or service fees to benefit from its monthly distributions.
SPRXX is also different from the previous Vanguard options in that it is classified as a prime money market fund. Thus, the fund is also able to invest in certificates of deposit and commercial paper alongside the usual Treasury bills and repurchase agreements. However, SPRXX’s seven-day SEC yield of 5.1% is lower than the previous options, dragged down by a higher 0.42% expense ratio.
Schwab Value Advantage Money Fund — Investor Shares (SWVXX)
Investors on Charles Schwab’s brokerage platform have access to SWVXX, the firm’s flagship money market fund. This fund dates back to April 1992, and has swelled to over $162 billion in AUM since. As a prime money market fund, SWVXX’s portfolio features the usual lineup of commercial paper, certificates of deposit, time deposits, repurchase agreements and Treasurys.
As with SPRXX, SWVXX does not require a minimum initial investment threshold. However, it does undercut SPRXX with a lower 0.34% expense ratio. The result is a higher 5.3% 30-day SEC yield thanks to the lower fees. As of Oct. 31, SWVXX has posted a total return of 2.4% since inception. Over the past six months, net inflows to this fund have remained high thanks to increased investor interest.
BlackRock Wealth Liquid Environmentally Aware Fund (PINXX)
Investors looking to incorporate environmental, social and governance, or ESG, considerations into their portfolio can use a money market fund like PINXX for cash management. To select its portfolio, this prime money market fund will screen the issuer based on its proprietary environmental criteria. The current assets held include repurchase agreements, commercial paper, time deposits and certificates of deposit.
The ESG criteria used by PINXX results in zero exposure to instruments issued by companies with controversial business activities as defined by MSCI. This includes thermal coal, oil sands, civilian firearms, tobacco, nuclear weapons and controversial weapons, to name a few. The fund requires a $1,000 minimum investment, charges a 0.49% expense ratio and pays a 5.1% seven-day SEC yield.
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7 Best Money Market Funds for 2024 originally appeared on usnews.com
Update 11/21/23: This story was previously published at an earlier date and has been updated with new information.
