Money market funds stand out as an ideal investment vehicle for those prioritizing cash management. This type of mutual fund is designed with a triple aim: to provide steady income, preserve capital and maintain high liquidity.
It accomplishes these goals by investing in short-term fixed-income instruments such as promissory notes, commercial paper, certificates of deposit (CDs), Treasury bills and repurchase agreements.
These instruments not only offer yields that align with current short-term interest rates but also boast high credit quality and are readily tradable, ensuring ease of access for investors.
“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.
A critical feature of money market funds is that the net asset value (NAV) per share is fixed at $1. Except in rare cases of extreme market turmoil, this characteristic allows money market funds to offer a stable investment experience, free from the volatility often seen in other markets.
However, it’s important to note that not all money market funds are created equal. Some come with high expense ratios that can reduce the net yields investors receive, while others impose minimum initial investment requirements that can be a barrier for those with smaller accounts.
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Charles Schwab is one asset manager that sidesteps these potential pitfalls. Schwab’s money market funds are known for having no transaction fees, no sales loads and no minimum required investments, making them accessible to a wide range of investors.
Moreover, the expense ratios on these funds are competitive, around 0.34% per annum on average, with even lower rates available for high-net-worth investors who qualify for the “ultra” shares, which have a $1 million minimum investment threshold.
Here are five of the best Schwab money market funds to buy now:
| Fund | Expense Ratio | 7-day SEC yield as of April 4 |
| Schwab Value Advantage Money Fund — Investor Shares (ticker: SWVXX) | 0.34% | 5.2% |
| Schwab Government Money Fund — Investor Shares (SNVXX) | 0.34% | 5.0% |
| Schwab Treasury Obligations Money Fund — Investor Shares (SNOXX) | 0.34% | 5.0% |
| Schwab U.S. Treasury Money Fund — Investor Shares (SNSXX) | 0.34% | 5.0% |
| Schwab Municipal Money Fund (SWTXX) | 0.34% | 3.4% |
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 metric is calculated as the average income paid out over the prior seven days net of all waivers and fees. In terms of fees, investors can expect the usual 0.34% expense ratio for SWVXX.
It’s important to note that SWVXX is a “prime” money market fund. This means that the fund is able to hold lower credit quality, but higher-yielding commercial paper and time deposits. For high-net-worth investors, investing at least $1 million grants access to the Schwab Value Advantage Money Fund — Ultra Shares (SNAXX) at a lower 0.2% expense ratio and higher 5.3% seven-day SEC yield.
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.
Unlike SWVXX, SNVXX is classified as a government money market fund. Legally, this means it must invest 99.5% or more of its assets in government-issued securities like Treasurys or agency debt, or repurchase agreements collateralized by them. As a result, SNVXX has lower credit risk compared to a prime money market fund like SWVXX, but also a lower 5% seven-day SEC yield.
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Schwab Treasury Obligations Money Fund (SNOXX)
Another safe alternative to SNVXX is SNOXX, which is also classified as a government money market fund but has a few key differences. Namely, it does not hold any government agency-issued debt. For example, SNVXX currently holds securities from the Federal Farm Credit Banks Funding Corp. and Federal Home Loan Banks. SNOXX, on the other hand, does not target these issuers.
Instead, SNOXX’s portfolio entirely consists of either government-issued Treasurys or Treasury repurchase agreements from large banks collateralized by Treasurys and cash. Practically speaking, though, SNOXX can be expected to perform similarly to SNVXX, with the same 5% seven-day SEC yield and standard 0.34% expense ratio typical of Schwab’s money market funds.
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.”
For this application, investors can consider a Treasury-only money market fund like SNSXX. Currently, SNSXX’s holdings consist solely of U.S. government-issued Treasurys, with no agency debt or repurchase agreements — unlike SNVXX or SNOXX. As such, it is one of the safest funds in Schwab’s lineup in terms of credit risk. 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. While a municipal money market fund may appear to have a low seven-day SEC yield, this figure can be deceiving. For high-income-bracket investors, this yield can surpass the net after-tax yield from a normal money market fund.
Schwab’s primary offering in this niche is SWTXX, which currently pays a seven-day SEC yield of 3.4% with a 0.34% expense ratio. Unlike the previous funds, SWTXX primarily holds variable-rate demand notes, tender option bonds, and commercial paper from municipal organizations like the Huntsville Healthcare Authority and the California Health Facilities Financing Authority, to name a few.
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5 Best Charles Schwab Money Market Funds originally appeared on usnews.com
Update 04/05/24: This story was previously published at an earlier date and has been updated with new information.
