In this fast-paced, ever-changing financial landscape, finding the best money market mutual funds can be like searching for a needle in a haystack.
But fear not; this article will take you on an exhilarating journey through the ten best money market mutual funds in 2023 that can supercharge your savings and make your financial dreams come true.
Let’s dive in!
What Are Money Market Mutual Funds?
Money market funds are fixed-income mutual funds that invest in debt securities with short maturities and very low credit risk. They offer ultra-low volatility and excellent liquidity and may invest in taxable or tax-exempt government securities.
Since money market funds are open-ended, consumers may purchase unlimited shares. At a price equal to the daily determined net asset value (NAV), the fund sells and redeems the shares.
Money market fund managers use unique pricing and valuation methods to maintain their NAV fixed at $1 per share. Depending on the current market value of the securities in their portfolios, some allow their NAV to fluctuate.
There are plenty of reasons investors pull their cash out of bank deposits. First of all, they’re spooked by the collapse of Silicon Valley Bank. Second, for many people, money market funds look like a safer bet than the stock market, a witches’ brew of woes: cryptocurrency crack-ups, rising interest rates, sticky inflation, and the specter of recession.
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How Do Money Market Funds Work?
Money market funds are mutual funds that invest in short-term, low-risk securities to preserve capital and provide liquidity to investors. Financial institutions and investment companies typically offer these funds. Money market funds are considered relatively safe because they invest in highly liquid and low-risk instruments, making them suitable for investors who want a stable place to park their cash while earning some return.
Basically, money market funds work by pooling the capital of numerous investors together and investing it in a portfolio of fixed-income securities selected for three traits: high credit quality, short maturity, and good liquidity. Money market funds invest in a diversified portfolio of short-term securities, such as Treasury bills, commercial paper, certificates of deposit (CDs), and other high-quality, short-term debt instruments. Governments, corporations, or financial institutions typically issue these investments.
The underlying portfolio of securities in a money market fund helps it achieve a dual objective. The first is maintaining a stable net asset value per share of a dollar, regardless of market conditions. This eliminates volatility for the money market fund and makes it attractive to investors looking for safety.
The second objective is regular income. Distributions are made from the interest revenue produced by the underlying portfolio of the money market fund. The level of revenue will typically change in lockstep with market interest rates. Investors will periodically receive income payments, typically monthly.
Are Money Market Mutual Funds Insured?
Money market mutual funds often come with a layer of protection, although not in the traditional sense of FDIC insurance. While the government does not back them like bank accounts, many funds have set up safeguards to reduce risk.
They typically invest in highly liquid and low-risk assets, making the chances of losses quite slim. Additionally, some funds operate under the Securities and Exchange Commission’s (SEC) Rule 2a-7, which enforces strict regulations on their portfolio quality, maturity, and diversification. This rule aims to maintain a stable $1 net asset value (NAV) per share.
However, it’s important to note that there’s still a minor chance of NAV dropping below $1 (known as “breaking the buck”). So, while not insured like a savings account, they’re designed to be quite safe.
How Do Money Market Mutual Funds Differ From Other Mutual Funds?
So, money market mutual funds are like the practical superheroes of the mutual fund world. They’re all about stability and short-term gains. Picture this: while regular mutual funds dive into a mix of stocks and bonds, money market funds dive into super-safe, low-risk waters like Treasury bills and commercial paper.
They’re like the cozy haven for your money, aiming for steady but modest returns. Think of them as your financial safety net for parking cash you might need soon. Other mutual funds, though, can venture into riskier territories for potentially higher rewards. It’s all about finding the right fit for your financial goals and comfort level!
Best Money Market Mutual Funds
Here’s a list of the 10 best money market mutual funds:
1. Fidelity Money Market Fund (SPRXX)
Minimum Investment
$1
Expense Ratio
0.42%
7-Day Yield
4.82%
The Fidelity Money Market Fund is one of three funds on our list that require a minimum initial investment of only one dollar. Still, it is not the cheapest option—seven other funds levy even lower expense ratios.
The bulk of SPRXX’s holdings are different forms of repurchase agreements. Repos, as they’re also known, are overnight loans to the Federal Reserve, backed by U.S. Treasurys. The Fed repurchases them the next day at a slightly higher price. That price premium is their implicit interest rate.
2. T. Rowe Price U.S. Treasury Money Fund Z (PRTXX)
Minimum Investment
$2,500
Expense Ratio
0.30%
7-Day Yield
4.76%
Its expense ratio puts T. Rowe Price U.S. Treasury Money Fund in the middle of the pack regarding annual cost on our list of best money market mutual funds for 2023.
Another money market fund that primarily invests in U.S. Treasury repurchase agreements is PRTXX. The second-largest holdings category for the fund is U.S. Treasury notes.
The weighted average maturity of the fund’s assets, PRTXX, will not exceed 60 days, and all securities the fund currently owns will mature in 397 days or less.
3. Schwab Value Advantage Money Fund Investor (SWVXX)
Minimum Investment
$1
Expense Ratio
0.34%
7-Day Yield
4.95%
According to Crane, Schwab and other brokerages moved their so-called sweep money from low-yield bank accounts into higher-yield money funds last year, resulting in the fastest-growing money market fund in the world.
More than $130 billion in shareholder assets are currently held by SWVXX. The greatest single form of holding for SWVXX is buyback agreements with the Treasury and other government agencies. Its second and third largest holdings are CDs and commercial paper, respectively.
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4. T. Rowe Price U.S. Treasury Money Fund Z (PRTXX)
Minimum Investment
$2,500
Expense Ratio
0.30%
7-Day Yield
4.76%
Another money market fund, PRTXX, has most of its assets in U.S. Treasury repurchase agreements. The second-largest holdings category for the fund is U.S. Treasury notes.
The weighted average maturity of the holdings in PRTXX, which measures the maturity of all securities held by the fund, is currently 397 days or less.
5. T. Rowe Price Government Money Fund (PRRXX)
Minimum Investment
$2,500
Expense Ratio
0.30%
7-Day Yield
4.78%
Rowe Price T. Government Money Fund solely invests in money market assets denominated in US dollars. All of the securities issued by PRRXX expire in 397 days or less. The Fund’s weighted average maturity shall be at most 60 days.
Repurchase agreements make up about 75 percent of the fund’s holdings. Debt issued by the United States government and its agencies makes up the second-largest holdings category for PRRXX.
6. Invesco Premier Portfolio Institutional (IPPXX)
Minimum Investment
$1,000
Expense Ratio
0.19%
7-Day Yield
5.15%
Invesco Premier Institutional has the highest yield of all funds on our list. This is due to a portfolio that consists mainly of short-term, high-credit-quality money market instruments. The securities are U.S.-dollar-denominated obligations, including primarily commercial paper, certificates of deposits, master and promissory notes, municipal securities, and repurchase agreements.
7. Vanguard Treasury Money Market Fund (VUSXX)
Minimum Investment
$3,000
Expense Ratio
0.09%
7-Day Yield
5.05%
VFMXX’s stablemate is the Vanguard Treasury Money Market Fund. VUSXX builds its portfolio using a somewhat different approach. VUSXX invests only in U.S. Treasury securities fully collateralized by Treasury obligations and repurchase agreements.
VUSXX maintains an average maturity of 60 days or fewer, just like its bigger sister fund. On our ranking, its expense ratio is the lowest.
8. BlackRock Wealth Liquid Environmentally Aware Fund Investor (PINXX)
Minimum Investment
$1,000
Expense Ratio
0.50%
7-Day Yield
4.80%
According to fund literature, PINXX considers environmental, social, and governance (ESG) factors in its investment decisions but is not ruled by such factors. The fund invests in a broad array of securities. Roughly 40% of its holdings are U.S. government agency repurchase agreements.
About another 15% are CDs. An almost equal amount is commercial paper–short-term unsecured promissory notes issued by companies. Nearly 10% are asset-backed commercial paper. The rest is a mix of fixed-income securities.
9. Fidelity Government Money Market Fund (SPAXX)
Minimum Investment
$1
Expense Ratio
0.43%
7-Day Yield
4.75%
The Fidelity Government Money Market Fund typically invests almost all of its shareholders’ money in cash, U.S. government securities, and repurchase agreements with cash or government securities as collateral.
SPAXX shares are quite safe, but there is still some risk involved. According to SPAXX literature, although some U.S. government securities issuers are supported or chartered by Congress, the U.S. Treasury neither issues nor guarantees such securities. The enormous size of SPAXX—which has grown to surpass $260 billion—balances out that minor weakness in its armor.
10. Vanguard Federal Money Market Fund (VMFXX)
Minimum Investment
$3,000
Expense Ratio
0.11%
7-Day Yield
5.05%
With roughly $251 billion of assets, Vanguard Federal Money Market Fund is the largest portfolio on our list of the best money market funds of 2023. It is the third largest such fund industrywide—one of the larger funds requires an initial investment of at least $10 million. In contrast, the other larger fund is Fidelity Government Money Market (SPAXX), the next fund on our list.
VMFXX invests mainly in securities issued by the U.S. government or its agencies. It also invests in repurchase agreements with collateral backing of U.S. Treasuries or, to a lesser extent, mortgage-backed securities. VMFXX maintains an average maturity of 60 days or less.
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How Can I Choose A Suitable Money Market Mutual Fund?
Several financial institutions, such as banks, brokerage firms, and mutual fund companies, offer money market funds. Here are some of the key factors to consider when choosing a money market fund:
- Yield: You’ll want to compare a fund’s yield to other funds in the industry to ensure you’re getting the best return on your investment.
- Expense ratio: Funds charge an expense ratio directly from the return you ultimately earn as an investor. All else being equal, the lower the expense ratio, the better it is for investors.
- Type of fund: Consider whether you’d like to invest in a government, prime, or municipal money market fund. Municipal money market funds may particularly appeal to those in high tax brackets.
- Other fees: Pay attention to any additional fees you may be charged when buying and selling money market funds. Some brokers may charge mutual fund commissions, while others may charge fees for funds from certain fund families.
Conclusion
Investors wishing to take advantage of the present interest rate environment or save for an immediate need may find money market funds to be a good fit. Remember that while the funds are considered low-risk, they are not FDIC-insured.
