MarketWatch on Money-Market Funds
MarketWatch tells us, "Want 5% yields? After Fed hike, it may be time to ditch high-yield savings accounts for money-market funds." The article says, "People focused on saving cash are poised to get another boost from the Federal Reserve on Wednesday as the central bank delivers another interest-rate hike. Even so, rising interest rates have not been lifting all accounts equally. The Fed raised the benchmark rate by 25 basis points to 5.25%-5.50%, the highest rate in 22 years. It marks the 11th rate hike of the Fed's last 12 meetings. Many high-yield savings accounts now have annual percentage yields of around 4%, up from an average of approximately 0.5% in March 2022, according to DepositAccounts.com, a platform that compares rates in U.S. savings accounts." It explains, "However, yields for many money-market mutual funds are now hovering at 5%, up from an average of 0.43% in March 2022, according to Crane Data, which tracks the industry. The seven-day yields for many money-market funds should hit the 5% mark as early as this weekend as the funds start absorbing the rate hike, according to Peter Crane, president and publisher of Crane Data. Money market funds -- low-risk mutual funds composed of holdings like high-quality government debt, repurchase agreements and corporate debt -- have swelled in size. On Tuesday, total assets in the funds hit a record-breaking $5.9 trillion, up $5.2 trillion at the end of 2022, according to Crane. The assets in funds geared at retail investors hit $1.97 trillion, up more than 20% year to date, Crane said. The mutual funds for institutional investors climbed to $3.81 trillion, up 10% over the same time period. 'Retail has been where the action has been over the last year,' Crane said. `The spread between deposit rates and money-market fund yields 'are finally big enough to make it worth moving,' he said." The MarketWatch piece asks, "So is it worth pulling money from high-yield savings accounts to chase even higher yields in money-market funds? Money-market funds have less liquidity, slightly higher risk -- hence the higher yield, experts say. Isabel Barrow, director, financial planning at Edelman Financial Engines, said yield is important, but it's not everything. Federal Deposit Insurance Corp. currently insures bank deposits up to $250,000 per account, while money-market funds are not covered by FDIC insurance, she said."
