Money Markets are Back!

Money Markets are back!

Your bank may not have mentioned that you can earn significantly higher interest by moving your money out of your local savings account.  Typically, bank savings accounts have paid less than 1%. Today mutual fund money markets are paying in excess of 4%. It’s not the 10% they were paying in the unique days of 1987 when I was only one year into my career, but these are worth your attention today.

Don’t wait to move your savings to a high-interest account.

Why the spike in interest rates?

It’s because the Federal Reserve has raised interest rates in the desperate hope of slowing down historic inflation.

What are money market mutual funds?

They pool investors’ money together and invest in very short-term debt securities such as commercial paper and US T-Bills. Money markets keep a $1 per share price for your money and they pay out a monthly dividend. While the price stays at $1 the yield can and will move based on interest rate moves in the economy.

Sample Current Mutual Fund Money Market 7-Day Yields:

Schwab Value Money Market (SWVXX)– 4.67%

Vanguard Prime Money Market (VMFXX) – 4.77%

Fidelity Money Market  (SPRXX) – 4.56%

CASH IS NO LONGER TRASH

Inverted Yield Curve

Usually, longer-term debt such as 10 or 30-year bonds pays a higher interest rate in exchange for the risk of owning for such a long time. That’s not the case today. Investors earn only about 3.5% today on the 10-year US Treasury Bond.

With the economy slowing down the way it is I find money markets or similar investments are VERY attractive for conservative investors that want to protect their nest egg for the short term.

Other short-term investment alternatives I like very much are:

• United States Treasury Bills
• United States Floating Rate Treasuries in an ETF such as USFR are another conservative option.
• Certificates of Deposit (CD’s)

These are great alternatives for the money you want to protect. These are all very competitive choices compared to longer-term bonds (they pay less interest and have more volatility) and stocks.

Most people are happy making 8-10% on stock holdings, but that comes with a lot of short-term volatility. For many people earning over 4% with little or no risk makes sense for a portion of their money.

In summary, check the interest rate on the account where you hold your savings. Consider allocating some of the conservative portions of your portfolio in money markets or other short-term defensive holdings.

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