When considering safe places to park your cash, Treasury bills (T-bills) and certificates of deposit (CD) are popular choices, but each has its drawbacks.
CDs offer strong security due to Federal Deposit Insurance Corp. or National Credit Union Administration insurance, but they lock in your money for a fixed term. Withdrawing funds early from a CD typically incurs penalties, such as forfeiting some interest earned.
On the other hand, T-bills are highly liquid and backed by the U.S. government, making them very safe. However, purchasing them directly involves navigating TreasuryDirect.gov, a platform often criticized for its outdated interface and user experience.
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A practical middle ground is investing in money market funds. These funds are accessible through a brokerage account just like any mutual fund. They are designed to maintain a stable net asset value, or NAV, of $1 per share while paying monthly interest at prevailing short-term interest rates.
This makes money market funds a convenient option for investors looking for safety, liquidity and a modest return on their cash reserves.
“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 good place to start exploring money market funds is with Charles Schwab Corp. (ticker: SCHW). Schwab offers funds with no minimum investment requirements and no transaction fees, along with 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 Nov. 8 |
| Schwab Value Advantage Money Fund (SWVXX) | 4.6% |
| Schwab Government Money Fund (SNVXX) | 4.5% |
| Schwab U.S. Treasury Money Fund (SNSXX) | 4.4% |
| Schwab Municipal Money Fund (SWTXX) | 2.5% |
| Schwab AMT Tax-Free Money Fund (SWWXX) | 2.5% |
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.” This broad mandate is made possible by SWVXX’s designation as a “prime” money market fund, which allows it to invest in not only Treasurys and repurchase agreements, but also promissory notes, commercial paper and CDs.
SWVXX is fairly straightforward. Investors who hold it currently earn a 4.6% seven-day SEC yield, which measures the average income paid out over the previous seven days, assuming no reinvestment and after fee waivers. SWVXX charges the usual 0.34% expense ratio, but if you invest $1 million or more you get access to the “Ultra” share class, which pays a higher yield thanks to a lower expense ratio.
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.” The Schwab money market fund for this role is SNVXX.
Unlike SWVXX, SNVXX does not hold any corporate-issued fixed-income securities, which lowers credit risk but at the cost of some yield. It only holds government-issued securities like Treasurys and repurchase agreements. “The trade-off is that they typically offer lower returns than prime money market funds,” Schulman explains. Compared to SWVXX, SNVXX pays a lower 4.5% seven-day SEC yield.
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.”
SNSXX exclusively holds T-bills, which are direct obligations of the U.S. government, making them among the safest investments. They carry no credit risk, as they are backed by the full faith and credit of the U.S. government, compared to repurchase agreements, which involve some risk that the other party may default on its obligation. SNSXX pays a 4.4% seven-day SEC yield.
[READ: 7 Best Treasury ETFs to Buy Now]
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.”
Prime money market funds pay some interest from corporate securities, which are taxable as ordinary income. Treasury money market funds pay interest that is exempt from state taxation, but not from federal. To avoid federal taxation, a municipal money market fund like SWTXX is ideal. It pays a 2.5% seven-day SEC yield, which seems low, but is usually higher when adjusted for taxes otherwise paid.
Schwab AMT Tax-Free Money Fund (SWWXX)
Schwab offers specialized state-specific funds for California and New York, helping residents avoid state taxes. However, high-income earners should also be aware of the alternative minimum tax (AMT). The AMT is a supplemental income tax that ensures those benefiting from certain exclusions, deductions or credits pay at least a minimum amount of tax. To avoid this, consider SWWXX.
SWWXX is a special municipal money market fund that only holds securities screened for AMT exemption. It doesn’t offer the benefits of state-specific municipal money market funds, but can potentially help high-earning investors avoid AMT. Currently, the fund pays a 2.5% seven-day SEC yield. An “Ultra” variant with a $1 million minimum and a higher 2.6% yield is also available.
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5 Best Schwab Money Market Funds originally appeared on usnews.com
Update 11/11/24: This story was previously published at an earlier date and has been updated with new information.
