Money Market Funds
Compare money market fund yields and expense ratios.
| Note | ||
|---|---|---|
4.31% | ||
4.24% | ||
4.23% | ||
4.22% | ||
4.21% | ||
4.21% | ||
4.21% | ||
4.21% | ||
4.15% | ||
4.15% | ||
4.14% | ||
4.14% | ||
4.03% | ||
4.02% | ||
4.02% | ||
3.97% | ||
3.96% | ||
3.94% | ||
2.76% | ||
2.72% | ||
2.57% | ||
2.56% | ||
2.52% | ||
2.33% | ||
2.14% |
Overview
Money market funds are portfolios of very short-term, high-quality debt such as Treasury bills, agency securities, and repurchase agreements. They target three things: liquidity, principal stability, and a yield that tracks short-term interest rates. Retail government and retail prime funds typically transact at a stable $1.00 per share, though yields fluctuate with the rate environment. Many investors pair a brokerage cash account with a government money market fund as the core position to get near-policy yields and easy spending access through checks, debit, or bill pay provided by the brokerage.
Types of Money Market Funds
Government/Treasury
Invest primarily in U.S. government and agency securities and repos. Highest credit quality, usually a slightly lower yield than prime.
Prime
May hold top-tier commercial paper, certificates of deposit, and repos. Potentially higher yield with slightly more credit and liquidity risk than government funds.
Municipal (Tax-Exempt)
Hold short-term municipal obligations. Income is generally federal tax-free; single-state funds may also be state tax-free for residents.
Money Market ETFs (2a-7)
Operate under money-market rules but trade intraday on exchanges. They aim for liquidity and principal stability but can trade around a market price rather than a fixed $1.00 transaction NAV.
Yields, Expenses, and Minimums
SEC yield
Use the standardized SEC yield for comparisons. It reflects recent income net of expenses.
Expenses
The expense ratio is deducted from gross income. Lower expenses usually mean a higher net yield for the same portfolio.
Minimums and access
Mutual funds may have investment minimums; ETFs do not. In a cash management setup, brokers can auto-liquidate the core money market position to cover payments.
Rate behavior
Yields generally move with short-term policy rates. As holdings mature and are reinvested, yields adjust, often with a small lag.
Taxes
Taxable government or prime funds
Dividends are ordinary income for federal tax. A portion may be exempt from state income tax if derived from U.S. government obligations. The percentage varies by fund and by year and appears on your 1099-DIV.
Municipal funds
Dividends are generally federal tax-free. State tax may also be exempt if you use a single-state fund and you live in that state. Some income can be subject to AMT depending on holdings.
What to compare
Consider after-tax yield using your marginal federal and state rates. For munis, calculate tax-equivalent yield to compare with taxable alternatives.
Key Risks
Credit and counterparty
Minimal for government funds; higher (but still conservative) for prime funds that hold corporate instruments and repos.
Interest-rate lag
Yields reset as holdings mature, which creates a lag in rising and falling rate environments.
Liquidity stress
Heavy redemptions during market stress can pressure liquidity. Regulations may permit or require liquidity fees for certain fund types in those conditions.
NAV behavior
Retail government and retail prime funds transact at $1.00 per share. Institutional funds may float. Money market ETFs trade intraday at market prices.
Inflation
Real returns can be negative if short-term rates sit below inflation.
Operational
Core-sweep settings, trade cut-offs, and settlement rules affect how "spendable" the cash is.
Maintaining a Bank Account
Many people use a brokerage cash setup with a government money market fund instead of a high-yield savings account. Yields track short-term rates and often land around four-fifths of the top HYSA APYs, depending on fees and rate moves.
At Fidelity, a Cash Management or standard brokerage account provides checks, debit, and Bill Pay. Payments draw from the core position and Fidelity can auto-liquidate an eligible money market fund, so you can treat it like a bank account.
Keep in mind: bank sweeps are FDIC insured while MMFs are not. Trades settle T+1, but spending through the account can be immediate. Compare after-tax SEC yield to your HYSA APY before choosing where to park cash.
SIPC Insurance
Money market funds are investment securities, not bank deposits, and are therefore not covered by FDIC insurance. Instead, they may be protected by SIPC (Securities Investor Protection Corporation) insurance when held at a brokerage firm.
SIPC Coverage
- Coverage Limit: Up to $500,000 per customer, per brokerage firm
- What SIPC Covers: Protection against brokerage firm failure, not investment losses
- Fund Company Risk: SIPC does not protect against losses from poor fund performance
- Custodial Protection: Fund assets are held separately from the fund company's assets
Important Distinction
SIPC insurance protects against the failure of the brokerage firm holding your investments, not against market losses or the risk of the money market fund "breaking the buck." The fund's assets are held in custody separately from the fund company's own assets, providing additional protection.
FAQ
Are money market funds safe?
They are among the lowest-risk investment funds, with strict maturity, credit, and liquidity constraints. They are not bank deposits and are not FDIC-insured.
How do they compare to high-yield savings accounts?
High-yield savings accounts are bank deposits with FDIC insurance and APY. Money market funds are investment products with SEC yields that track short-term rates. Access depends on your brokerage tools.
Can I lose money?
It is rare but possible. Institutional funds may have floating NAVs, and all funds carry small market and operational risks. ETFs are market-priced and can trade below recent NAV.
How fast can I access my money?
Brokerage cash accounts can provide immediate spending via checks or debit with auto-liquidation, while trades typically settle T+1.
What is the difference between a money market fund and a money market account?
A money market account is a bank deposit with FDIC insurance and check/debit privileges. A money market fund is an investment security with potential for higher yield but no FDIC insurance.
Should I choose government or prime?
Choose government for maximum credit quality and simplicity. Choose prime if you want a modest yield pickup and accept slightly higher credit exposure. Compare after-tax SEC yields net of expenses.
Do money market funds pay monthly?
Most accrue dividends daily and pay them monthly. Reinvesting keeps the yield compounding.
On This Page