Money-Market Funds Offering Juicier Yields
Beware, however: They are not protected from losses by the Federal Deposit Insurance Corp.
For years, money market mutual funds have paid practically nothing. But each time the Federal Reserve lifts short-term interest rates, yields on money market funds tend to rise in tandem. “That’s one of their most attractive qualities,” says Peter Crane, president of Crane Data, a money fund research company. Many money funds yield more than 1%, and Crane expects yields on some funds to surpass 2% this summer. Rates on savings accounts from banks have also been increasing but have not kept pace with Fed rate hikes.
Money market funds invest in high-quality, short-term securities, such as Treasury bills, commercial paper and certificates of deposit. Although they carry little risk, they are not protected from losses by the Federal Deposit Insurance Corp. Cash that must be in a safe place, such as an emergency fund, is best stashed in an FDIC-insured bank account. Money funds provide a convenient holding place for cash in, say, a linked brokerage account.
You are more likely to get a higher payout if you invest in a money fund with low expenses. Vanguard Prime Money Market Investor (VMMXX) yielding 1.6%, has an expense ratio of 0.16%. Taxable money funds generally offer higher yields than tax-free municipal money funds. But if you’re in one of the top federal income tax brackets and live in a state with high income taxes, you may come out ahead with a tax-free fund. Look at the taxable-equivalent yield - the yield you’d need to earn on a comparable taxable fund after paying taxes to match the yield of the tax-free fund. For example, Vanguard Municipal Money Market (VMSXX) yields 1.10%, which is a taxable-equivalent yield of 1.75% for an investor in the 37% federal tax bracket.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Lisa has been the editor of Kiplinger Personal Finance since June 2023. Previously, she spent more than a decade reporting and writing for the magazine on a variety of topics, including credit, banking and retirement. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.
-
Stock Market Today: Bitcoin, Boeing Shine as Stocks Slip
Digital World Acquisition sizzled, too, ahead of tomorrow's merger with Trump Media & Technology Group.
By Karee Venema Published
-
Stellantis Recalls 285K Vehicles Over Airbag Problems
Defective airbag inflators on certain Chrysler and Dodge vehicles could rupture and cause injury or death, NHTSA says.
By Joey Solitro Published
-
403(b) Contribution Limits for 2024
retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
By Jackie Stewart Published
-
SEP IRA Contribution Limits for 2024
SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
By Jackie Stewart Published
-
Smart Ways to Invest Your Money This Year
Following a red-hot run for the equities market, folks are looking for smart ways to invest this year. Stocks, bonds and CDs all have something to offer in 2024.
By Jeff Reeves Published
-
Roth IRA Contribution Limits for 2024
Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
By Jackie Stewart Published
-
SIMPLE IRA Contribution Limits for 2024
simple IRA The maximum amount workers at small businesses can contribute to a SIMPLE IRA increased by $500 for 2024.
By Jackie Stewart Published
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
By Jackie Stewart Published
-
Roth 401(k) Contribution Limits for 2024
retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
By Jackie Stewart Published
-
Vanguard's New International Fund Targets Dividend Growth
Investors may be skittish about buying international stocks, but this new Vanguard fund that targets stable dividend growers could ease their minds.
By Nellie S. Huang Published