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Cash No Longer Trash

Mike Zaccardi

MONEY MARKET YIELDS are no longer zero. Far from it. With the Federal Reserve raising short-term interest rates by another 0.75 percentage point last week, investors can now park their savings in a safe money-market mutual fund and earn more than 2%.

If you look at Vanguard Federal Money Market Fund (symbol: VFMXX), you won’t see a seven-day SEC yield that’s that high—yet. But give it a few days. Right before the Fed’s move last week, Vanguard’s money market fund yielded 1.5%. Add 0.75 percentage point to that figure, and you’ll get a sense for where we’re headed.

For folks with accounts at Fidelity Investments, another option is Fidelity Money Market Fund (SPRXX). The last time I reviewed Fidelity’s policies, it doesn’t allow that fund to be a default core cash position. Instead, you must opt to purchase the fund’s shares, just like you would any other fund. That means there’s an extra step to get the fund’s higher yield, versus Fidelity Government Money Market Fund (SPAXX), which has a lower SEC yield but can be used as a default cash position. I stumbled across a Fidelity Institutional page that lists a “one-day” SEC yield of 1.96% for Fidelity Money Market Fund as of July 29.

Earlier this year, I suggested people consider a short-term Treasury bond fund for their emergency savings. At the time, the yields on those funds were attractive relative to bank money market accounts and online savings accounts. I took my own advice. As it turns out, I was early with that call. Rates rose through mid-June, leading to modest share-price declines among the Treasury funds I mentioned in March. But now, with Treasury note yields declining over the past seven weeks while the Fed hikes short-term rates, I decided to make a switch.

Late last week, I exchanged my emergency money, which had been sitting in Fidelity Short-Term Treasury Bond Index Fund (FUMBX), to Fidelity Money Market Fund. My plan now is to keep my cash in that money market fund through at least early 2023. That’s when traders see the Fed’s rate-raising campaign peaking in the 3.25% to 3.5% range. Thanks to the Fed’s actions and a Treasury yield curve that’s the most inverted it’s been since 2000, money-market mutual funds look like a relatively good deal—one that comes with little risk.

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P WARE
P WARE
1 day ago

3 month t bill is 2.44%

MikeinLACA
MikeinLACA
1 day ago

Thoughts on Schwab? SWVXX (their main purchased money market fund) appears to yield 2.07%. But as with the other firms, you need to buy it. Not a passive sweep fund.

sumzero
sumzero
4 days ago

Note that SPRXX is still counted as “cash available to trade” so while you have to take the step to move cash into it, you don’t have to move cash out in order to trade.

Mike Zaccardi
Mike Zaccardi
3 days ago
Reply to  sumzero

I noticed that too! I’ll take it.

Guest
Guest
5 days ago

Also at Fidelity, but not a core MM, consider FZDXX for a bit higher yield than SPRXX but min to open is $100k. You can then go below $100k and keep it.

Mike Zaccardi
Mike Zaccardi
3 days ago
Reply to  Guest

Oh wow. Nice trick!

Olin
Olin
6 days ago

Mike, thanks for the informative article.

Regarding the SPRXX fund, you said “I stumbled across a Fidelity Institutional page that lists a “one-day” SEC yield of 1.96% for Fidelity Money Market Fund as of July 29.”

As a Fidelity customer, this one-day yield is not reflected via normal access, but I do see it via the link you provided. Can you elaborate more about this yield and how would a Fidelity customer get access to it?

Mike Zaccardi
Mike Zaccardi
6 days ago
Reply to  Olin

I’m not sure why it’s only listed there, but it applies to both retail and institutional holders of the fund. It’s semantics, though. The real-time SEC yield is probably about 2.1% right now.

Olin
Olin
6 days ago
Reply to  Mike Zaccardi

Thanks again Mike. I called Fidelity and even they couldn’t explain it.

OldITGuy
OldITGuy
6 days ago

Thanks for the info. After reading your article I realized the money market funds had crept up while I wasn’t paying attention so I moved some cash I had sitting into SPRXX. Nice.

Mike Zaccardi
Mike Zaccardi
6 days ago
Reply to  OldITGuy

Nice! Should be above 3% before long, too!

parkslope
parkslope
6 days ago

Thanks, Mike. I’ve always gone with the simplicity of online bank savings accounts but am going to switch to either SPRXX or VMFXX and CDs. VMFXX has an expense ratio of.11% versus.18% for SPRXX and a slightly higher YTD return, so I’ll probably go with it.

Mike Zaccardi
Mike Zaccardi
6 days ago
Reply to  parkslope

Yep, VMFXX is best it seems. What’s nice about the SEC yield with money market mutual funds is that it considers the fund’s expense ratio. So it’s a true apple-to-apples comparison metric.

William Ehart
William Ehart
6 days ago

Thanks Mike. Made a move to SPRXX a week or so ago, out of an online savings account, mainly because I wanted to consolidate nearly all of my accounts in one place, in this case, Fidelity.

Mike Zaccardi
Mike Zaccardi
6 days ago
Reply to  William Ehart

Simplicity wins out many times!

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