Starving for Yield? Check Out Money-Market Funds
If you think high-yield savings accounts offer juicy rates to park some cash, wait until you see what money-market funds are paying.
Yields paid by the typically staid mutual funds, which invest mostly in short-term government bonds, spiked from 0.02% earlier this year to more than 3.6% as of early December, according to Crane Data’s 100 money-market fund index. After this week’s rate increase by the Federal Reserve, money-market fund yields are poised to soar even higher.
That compares with a 3% average payout for a high-yield online savings account. Although that’s the highest in at least five years, banks haven’t exactly kept pace with the Fed’s interest-rate increases since May.
That’s because the rates offered by banks are ultimately at their discretion and influenced by factors other than the Fed’s moves. The biggest banks are still flush with pandemic cash so have barely budged from what they’re paying depositors on their savings accounts. (The average for all banks was 0.24% as of Nov. 21, according to the Federal Deposit Insurance Corp., but if you bank at say, Wells Fargo or Chase, you’re lucky if you get 0.02%.)