Both the European Central Bank and the Bank of Canada have initiated 25-basis-point cuts in their policy interest rates, but their U.S. counterpart has not followed suit.
In its June decision, the Federal Reserve again kept its policy interest rate unchanged at 5.25% to 5.5% and indicated that markets could expect just one prospective cut for the remainder of 2024.
This decision bodes well for investors holding money market funds, which in recent years have offered yields surpassing those of dividend stocks and even real estate investment trusts (REITs), while presenting much lower volatility and risk.
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With short-term interest rates high, the instruments held by these funds — Treasury bills, certificates of deposit, repurchase agreements and commercial paper — are yielding above average.
“Money market funds invest in very liquid, short-term securities with the objective of preserving your capital, while also providing income at prevailing market rates,” says Nafis Smith, principal and head of taxable money markets at Vanguard.
This, combined with their excellent credit quality and liquidity, allows money market funds to do what most mutual funds cannot — maintain a fixed net asset value (NAV) per share of $1.
Practically speaking, this means that investors holding shares of a money market fund can expect to see their holdings maintain a stable value in all but the most extreme market environments or black swan events.
“The risk associated with money funds is very low, given that the SEC mandates that only securities with high credit quality and shorter maturities are eligible holdings,” Smith says. “For investors, it’s like you’re getting paid to be patient while the Federal Reserve works toward taming inflation.”
This stability, along with the promise of monthly distributions in most cases, gives you an excellent vehicle for keeping short-term cash safe and productive in a brokerage account.
“With short-term interest rates above 5%, money market funds have again become a meaningful part of the investment landscape,” says James Dowd, CEO at North Capital. “Consumers are savvy — they will not settle for a 1% interest rate at their bank if they can easily invest in a money market fund and earn five times the return.”
Here are seven of the best money market funds to buy for 2024:
| Money market fund | Expense ratio | 7-day SEC yield as of June 14 |
| North Capital Treasury Money Market Fund (ticker: NCGXX) | 0% | 5.4% |
| Vanguard Federal Money Market Fund (VMFXX) | 0.11% | 5.3% |
| Vanguard Treasury Money Market Fund (VUSXX) | 0.09% | 5.3% |
| Schwab Value Advantage Money Fund – Investor Shares (SWVXX) | 0.34% | 5.2% |
| Fidelity Money Market Fund (SPRXX) | 0.42% | 5.0% |
| Schwab AMT Tax-Free Money Fund – Investor Shares (SWWXX) | 0.34% | 3.0% |
| BlackRock Wealth Liquid Environmentally Aware Fund (PINXX) | 0.49% | 5.0% |
North Capital Treasury Money Market Fund (NCGXX)
“By offering an institutional share class with same-day liquidity to institutions and individuals, we hope to encourage all types of investors to incorporate NCGXX into their liquidity management,” Dowd says. This money market fund is currently waiving expense ratios to nil, which helps it offer a high seven-day SEC yield of 5.4%. Had the fee waiver not been in place, the yield would have been lower at 3.5%.
NCGXX is classified as a government money market fund, meaning that legally, it must invest at least 99.5% of its assets in government-issued securities. In the case of NCGXX, its portfolio largely consists of Treasury bills. However, other government money market funds may also hold repurchase agreements collateralized by cash or Treasury bills, or even government-agency-issued debt.
Vanguard Federal Money Market Fund (VMFXX)
“Money market funds are highly correlated with short-term interest rates,” Smith says. “If you look backward at how much the federal funds target rate has changed over the past year, you’ll see that money market rates have moved in lockstep with them.” This can be seen with VMFXX’s seven-day SEC yield of 5.3%, which sits in the midpoint of the federal funds range of 5.25% to 5.5%.
VMFXX is also a government money market fund. Its 255 holdings are split between repurchase agreements, U.S. government obligations and Treasury bills. It is one of Vanguard’s oldest funds, with an inception date of July 1981 and a track record of surviving major market upheavals. However, while it does charge a fairly low 0.11% expense ratio, there is a $3,000 minimum investment required.
Vanguard Treasury Money Market Fund (VUSXX)
“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.” Another option from Vanguard is VUSXX.
VUSXX is also classified as a government money market fund, but unlike VMFXX, it eschews government obligations and repurchase agreements to focus solely on Treasury bills. Practically speaking, though, the two funds are nearly identical in terms of risk and return, with VUSXX also paying a 5.3% seven-day SEC yield. However, it charges a lower 0.09% expense ratio.
Schwab Value Advantage Money Fund – Investor Shares (SWVXX)
“Prime money market funds invest in debt securities issued by corporations, government agencies and government-sponsored entities,” says Jeff Fisher, managing principal and head of investment strategy at Peapack Private, the wealth division of Peapack-Gladstone Bank. In addition to the usual Treasury bills and repurchase agreements, these funds can also hold commercial paper and time deposits.
Before fees are factored in, a prime money market fund like SWVXX can be expected to pay a higher yield than a government money market fund. This is because the slightly higher credit risk of its non-government holdings is compensated by greater income. But because SWVXX charges a higher 0.34% expense ratio, its seven-day SEC yield is reduced to just 5.2%, lower than VUSXX and VMFXX.
[READ: 5 Best Charles Schwab Money Market Funds]
Fidelity Money Market Fund (SPRXX)
If you’re investing on Fidelity’s brokerage platform, there are a number of no-transaction-fee, no-minimum-required-investment money market funds you can utilize. A popular pick is SPRXX, which has been around since January 1989. As with SWVXX, SPRXX is a prime money market fund. While it holds some Treasurys and repurchase agreements, it also holds time deposits and commercial paper.
While this fund boasts good accessibility with no transaction fees or minimum required investments, it does pay a much lower 5% seven-day SEC yield. This is primarily due to its high 0.42% expense ratio, which eats into the net income expected by investors. In addition, while not a significant risk, investors should be aware that more than 25% of the assets held by SPRXX are issued by financial institutions.
Schwab AMT Tax-Free Money Fund – Investor Shares (SWWXX)
“Tax-exempt money market funds invest in debt securities issued by states, counties, school districts and other municipal borrowers,” Fisher says. “This income is exempt from U.S. income taxes and, in some instances, from state income taxes.” While the yields of these funds may appear low at first glance, they are often higher when grossed up on a tax-equivalent basis, especially for high-income bracket investors.
For this role, Schwab offers SWWXX, which holds variable-rate demand notes, tender option bonds and commercial paper from various local government entities and municipalities. These are often issued to finance infrastructure projects such as hospitals, roads, bridges and waterworks. The 3% seven-day SEC yield paid by SWWXX is exempt from both federal income tax and the alternative minimum tax.
BlackRock Wealth Liquid Environmentally Aware Fund (PINXX)
Environmental, social and governance, or ESG,-conscious investors often employ a set of exclusionary screens when it comes to their holdings. For instance, they may choose to exclude stocks or bonds issued by companies involved in certain industries. Common industries excluded by ESG investors include oil sands, thermal coal, civilian firearms, nuclear weapons, alcoholic beverages and tobacco.
Money market funds can also adopt these ESG screeners. A great example is PINXX, which screens for the above industries while also excluding companies that violate the United Nations Global Compact. Otherwise, PINXX functions similar to a regular prime money market fund. However, it does pay a lower 5% seven-day SEC yield due to the presence of a fairly high 0.49% expense ratio.
[READ: 7 Best ESG Funds to Buy Now.]
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7 Best Money Market Funds to Buy for 2024 originally appeared on usnews.com
