When it comes to stashing cash with a chance at a slight return, money market funds are a staple offering from most major asset managers.
“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.
Money market funds are therefore designed to provide investors with safety and liquidity, but each fund family comes with its own set of trade-offs.
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Take Vanguard, for instance: Its money market funds, such as the Vanguard Treasury Money Market Fund (ticker: VUSXX) and the Vanguard Federal Money Market Fund (VMFXX), offer low expense ratios of 0.09% and 0.11%, respectively. However, they require a $3,000 minimum investment, a steep barrier for some investors.
On the other end, Fidelity offers options like the Fidelity Money Market Fund (SPRXX) with no minimum investment requirement, but at a much higher expense ratio of 0.42%, which can significantly impact the net yield received by investors.
If you’re looking for a middle ground, Charles Schwab Corp. (SCHW) might be the asset manager for you. Schwab’s money market funds strike a balance by eliminating minimum investment requirements and transaction fees, while maintaining a reasonable expense ratio of 0.34% across its investor class funds.
Here are five of the best Charles Schwab money market funds to buy:
| Fund | 7-day SEC yield as of Oct. 8 |
| Schwab Value Advantage Money Fund (SWVXX) | 4.7% |
| Schwab Government Money Fund (SNVXX) | 4.6% |
| Schwab U.S. Treasury Money Fund (SNSXX) | 4.7% |
| Schwab Municipal Money Fund (SWTXX) | 2.6% |
| Schwab New York Municipal Money Fund (SWYXX) | 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.” SWVXX is classified as a “prime” money market fund, which allows it to hold slightly higher-risk fixed-income securities issued by non-government entities. However, these are still screened for liquidity and high credit quality.
Currently, SWVXX is paying a 4.7% seven-day SEC yield. This figure represents the average income paid out over the previous week, net of fees and waivers. A few months ago, SWVXX was yielding over 5%, but due to recent interest rate cuts, investors now receive less. This is one of the hidden risks of money market funds — as interest rates fall, the yields expected by investors also decrease in lockstep.
Schwab Government Money Fund (SNVXX)
“While all money market funds are generally considered low-risk, government money market funds are viewed as the most conservative option,” says Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors. “These funds must keep at least 99.5% of their assets in government securities or related repurchase agreements.” Schwab’s main offering here is SNVXX.
However, the lower credit risk of government money market funds also comes with drawbacks. “The trade-off is that they typically offer lower returns than prime money market funds,” Schulman explains. While a prime money market fund like SWVXX pays a 4.7% seven-day SEC yield, SNVXX lags it at 4.6%. Still, conservative investors with a low risk tolerance may find this to be an acceptable trade-off.
Schwab U.S. Treasury Money Fund (SNSXX)
“For our multifamily office clients, we want a money market fund that is as safe as possible from disruption from pandemics, wars, strikes and other global macro events,” Schulman says. “In these cases, we often look to Treasury money market funds, which are considered flight-to-safety instruments and don’t have the spread widening risk of corporate or foreign instruments.”
The Schwab money market fund to use for this role is SNSXX, which only holds Treasury bills. It still pays a decent 4.7% seven-day SEC yield but also has ironclad credit quality and decent tax efficiency. “Earnings from Treasury investments are also exempt from state taxes, while the more attractive yields from money market funds investing in corporate debt will face state taxation,” Schulman explains.
Schwab Municipal Money Fund (SWTXX)
“If tax efficiency is your primary focus, consider investing in a municipal money market fund, where most earnings are typically free from federal taxes,” Schulman says. “These funds generally invest in debt securities from local and state entities, like city hospitals, state colleges, power companies and transit systems, so in addition to receiving tax advantaged income you will be doing a social good.”
Schwab’s main municipal money market fund is SWTXX. Its seven-day SEC yield of 2.6% might seem low, but don’t take this figure at face value. The true metric to assess is the fund’s “tax-equivalent yield,” which can be found via various online calculators. This makes the fund more attractive to those in higher tax brackets, as their effective, after-tax return will be higher compared to taxable funds of similar yields.
Schwab New York Municipal Money Fund (SWYXX)
If you select the right municipal money market fund, you can potentially avoid not only federal income tax, but also state income tax. However, this is only possible if you reside in the same state as where the underlying securities held by the fund are domiciled in. For instance, an investor living in New York, which has one of the highest income tax rates, should buy SWYXX.
This money market fund only holds short-term fixed-income securities issued by the state of New York and local municipal agencies. As a result, the interest paid by SWYXX is exempt from both federal income and New York state income taxes. As with SWTXX, the indicated seven-day SEC yield of 2.6% might seem paltry at first glance, but when adjusted for its tax-equivalent yield becomes much more attractive.
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5 Best Charles Schwab Money Market Funds originally appeared on usnews.com
Update 10/09/24: This story was previously published at an earlier date and has been updated with new information.
