5 Best Charles Schwab Money Market Funds

Today, there are quite a few ways investors can lower risk in their portfolios and preserve capital.

For instance, if you’re comfortable with trading individual bonds, building a Treasury ladder can be a good way to plan out your future cash flows while benefiting from the high credit quality of U.S. government-issued debt.

However, you’ll have to manually manage the portfolio, which usually involves using TreasuryDirect.gov, often criticized for its clunky and outdated user interface.

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You could also buy an ultra-short-term bond exchange-traded fund (ETF). By forking over an annual expense ratio, you get monthly distributions and fairly low volatility from professional bond management, allowing you to stay hands-off.

However, these ETFs can still lose money, as their net asset value (NAV) is not fixed. Despite having a short maturity, investors holding these ETFs can still expect some volatility as a result of interest rate changes and credit risk.

For most investors, the most accessible, liquid and safe solution to cash management needs is the time-tested money market mutual fund.

Money market funds work by holding a variety of assets, such as Treasury bills, repurchase agreements, commercial paper and time deposits. Generally, all of these assets share three traits: high credit quality, short maturities and excellent liquidity.

By pooling these assets in a mutual fund, you get a money market fund that is easy to buy and sell, with a fixed NAV of $1 per share, providing excellent stability and safety of principal.

“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.

Here are five of the best Charles Schwab Corp. (ticker: SCHW) money market funds to buy:

Money market fund Expense ratio 7-day SEC yield as of July 9
Schwab Value Advantage Money Fund (SWVXX) 0.34% 5.1%
Schwab Government Money Fund (SNVXX) 0.34% 5.0%
Schwab U.S. Treasury Money Fund (SNSXX) 0.34% 5.0%
Schwab Municipal Money Fund – Investor Shares (SWTXX) 0.34% 2.7%
Schwab AMT Tax-Free Money Fund – Investor Shares (SWWXX) 0.34% 2.6%

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.” The breadth of SWVXX’s portfolio is due to its classification as a prime money market fund, which allows it to go beyond holding just government-issued securities.

SWVXX is very accessible to retail investors thanks to a reasonable 0.34% expense ratio and no minimum initial investment requirement. However, high-net-worth investors can earn a 5.3% SEC yield by choosing its institutional class variant, the Schwab Value Advantage Money Fund Ultra Shares (SNAXX). This fund charges a lower 0.19% expense ratio but requires a $1 million minimum investment.

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.

Investors focusing on reducing risk as much as possible should consider government money market funds instead. Unlike prime money market funds, they must hold 99.5% or more in Treasurys, agency debt or repurchase agreements. This means they will not hold corporate-issued debt like promissory notes. An example is SNVXX, which pays a 5% seven-day SEC yield at a 0.34% expense ratio.

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 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.”

If you want to focus solely on income from Treasury bills, consider SNSXX. While still classified as a money market fund, SNSXX does not hold any agency debt or repurchase agreements. Instead, it only holds short-term U.S. Treasury bills. However, for all intents and purposes it will perform very similarly to SNVXX, with an identical 5% seven-day SEC yield and a 0.34% expense ratio.

Schwab Municipal Money Fund – Investor Shares (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. This feature makes municipal money market funds like SWTXX invaluable for investors primarily using taxable brokerage accounts as opposed to a tax-advantaged Roth IRA or 401(k) plan.

Unlike the previous money market funds, SWTXX’s holdings are largely issued by state and local governments. Currently, this includes tender option bonds and variable rate demand notes from the likes of the Alaska Housing Finance Corp. and the Huntsville Healthcare Authority. Investors can currently expect a 2.7% seven-day SEC yield along with the usual 0.34% expense ratio.

Schwab AMT Tax-Free Money Fund – Investor Shares (SWWXX)

High-income-bracket investors looking for a municipal money market fund may wish to double-check if it is exempt from the federal alternative minimum tax, or AMT. The AMT is a parallel tax system designed to ensure that high income earners pay a minimum amount of tax, regardless of deductions or credits. To avoid this, consider an AMT-free municipal money market fund like SWWXX.

The holdings in SWWXX are screened to ensure exemption from both federal taxes and AMT. As with SWTXX, investors can expect the usual tender option bonds and variable rate demand notes from state and local government entities such as the Florida State Board of Education and the Miami-Dade City Transit System. SWWXX pays a 2.6% seven-day SEC yield and charges a 0.34% expense ratio.

[READ: 7 of the Best Tax-Free Municipal Bond Funds]

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5 Best Charles Schwab Money Market Funds originally appeared on usnews.com

Update 07/10/24: This story was previously published at an earlier date and has been updated with new information.

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