When considering the safest options for holding funds in a brokerage account, money market funds often emerge as a top choice over other alternatives.
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Directly holding cash, while highly liquid and ready for immediate investment opportunities, falls short as a long-term strategy because it generates no returns, effectively losing value over time due to inflation.
Bond funds, though they offer long-term diversification and a source of steady income, don’t necessarily provide the safety net investors may be seeking. This is largely due to their duration, a measure of sensitivity to interest rate changes.
For instance, the average U.S. aggregate bond fund carries a duration of about six years, which implies a 6% decline in value for every 100-basis-point rise in interest rates, all else being equal.
Money market funds represent a middle ground, offering the best features of both cash and bonds. They invest in short-term, high-quality assets like Treasury bills, commercial paper and certificates of deposit, combining cash-like liquidity with the ability to generate income.
This liquidity means shares can be bought and sold easily at the end of the trading day, mirroring the flexibility of cash but without the associated risk of value erosion due to inflation. As with bond funds, the income from money market funds is usually distributed on a monthly basis.
Moreover, money market funds stand out for their safety. They maintain a very low duration, shielding them from the adverse effects of rising interest rates. In fact, as short-term rates increase, so do the yields of money market funds in lockstep.
Unlike other mutual funds, the net asset value (NAV) of money market funds is designed to remain stable at $1, except in extreme market conditions, ensuring capital preservation.
“If you have cash that you may need to access soon, a high yielding money market fund is a good place to park it safely,” says Jim Penna, senior manager of retirement services at VectorVest.
For Charles Schwab brokerage platform users, there’s a selection of top-notch money market funds readily available. They come with no transaction fees, have no minimum investment requirements and feature competitive expense ratios, making them an attractive choice for investors looking to balance safety, liquidity and income generation in their portfolios.
Here are five of the best Schwab money market funds to buy in 2024:
| Fund | Expense Ratio | 7-day SEC yield as of Feb. 20 |
| Schwab Value Advantage Money Fund (ticker: SWVXX) | 0.34% | 5.2% |
| Schwab Government Money Fund (SNVXX) | 0.34% | 5% |
| Schwab U.S. Treasury Money Fund (SNSXX) | 0.34% | 5% |
| Schwab Municipal Money Fund (SWTXX) | 0.34% | 3.1% |
| Schwab AMT Tax-Free Money Fund (SWWXX) | 0.34% | 3% |
Schwab Value Advantage Money Fund (SWVXX)
“One of the Schwab money market funds I like is SWVXX,” Penna says. “It invests in short-term securities issued by the U.S. government, corporations and financial institutions, and currently has a seven-day SEC yield of 5.2%. This represents the average income paid over the last seven days on an annualized basis.”
SWVXX is categorized as a prime market fund. Legally, this means the fund can hold a larger assortment of securities, including commercial paper and time deposits in addition to safer government Treasury bills and repurchase agreements. It charges a 0.34% expense ratio.
Schwab Government Money Fund (SNVXX)
“Ask whether you’re seeking to maximize yield from your money market fund and therefore are comfortable with it investing in more exotic short-term asset-backed securities and commercial paper or want to focus on a ‘risk-off’ style safety with a concentration on U.S. government-backed securities,” says Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
As a government money market fund, SNVXX’s portfolio is limited to U.S. government agency-issued fixed-income securities or repurchase agreements collateralized by them. Compared to SWVXX, this money market fund features lower credit risk, as the U.S. government is less likely to default. However, the trade-off is a lower 5% seven-day SEC yield. The fund charges a 0.34% expense ratio.
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Schwab U.S. Treasury Money Fund (SNSXX)
“Consider what is inside your money market fund — i.e., what the money market invests in,” Schulman says. “For example, Treasury bill income is not subject to state income tax, whereas some of the higher yielding money market accounts that invest in short-term corporate securities will be, which can make a noticeable after-tax income difference for people in high-tax states like California or New York.”
To focus solely on Treasury bills, investors can buy SNSXX. On average, the Treasury bills held in SNSXX’s portfolio have a weighted average of 50 days until maturity, allowing its yield to move with prevailing short-term interest rates. By holding only Treasury bills, the fund also possesses a very high credit rating. SNSXX charges a 0.34% expense ratio and pays a 5% seven-day SEC yield.
Schwab Municipal Money Fund (SWTXX)
“If paying taxes is the main concern, then you may want a municipal money market fund where the majority of income won’t be subject to federal income taxes,” Schulman says. Schwab’s primary offering here is SWTXX. The fund currently holds a portfolio of municipal-issued debt averaging 24.5 days until maturity, all of which are exempt from federal income tax.
SWTXX’s portfolio consists of instruments like variable-rate demand notes, tender option bonds, commercial paper, and other municipal securities issued by entities like the Metropolitan Washington Airport Authority and the District of Columbia Water & Sewer Authority, to name a few. The fund charges a 0.34% expense ratio and pays a 3.1% seven-day SEC yield.
Schwab AMT Tax-Free Money Fund (SWWXX)
For high-income bracket investors managing their portfolios outside of tax-advantaged accounts such as a 401(k) or Roth IRA, SWWXX offers a particularly appealing option. This fund is designed to provide a measure of relief from the federal alternative minimum tax, or AMT, which is a supplemental income tax levied by the U.S. federal government for certain high-income-earning individuals, estates and trusts.
As with SWTXX, SWWXX’s portfolio features the usual variable-rate demand notes, tender option bonds, and commercial paper issued by municipal organizations like the Huntsville Health Care Authority and the Southeast Energy Authority. Currently, investors can expect a 0.34% expense ratio and a 3% seven-day SEC yield, along with no minimum investment requirements.
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5 Best Charles Schwab Money Market Funds originally appeared on usnews.com
Update 02/20/24: This story was previously published at an earlier date and has been updated with new information.
