Money market funds are back in action. But now there are other options for your cash.
In our tumultuous times, money market funds have come back from the dead, along with a number of liquid, short-term, virtually no-money cash alternatives. As of November 2, money funds yielded an average of 2.9%, and that is likely to continue to rise as the Federal Reserve continues to raise interest rates.
Their real competition, in terms of investment convenience, security and liquidity, is not bank accounts, but short-term bond exchange-traded funds. The largest, 25 billion dollars
SPDR Bloomberg 1-3 months T-Bill
invest in the safest Treasury bills. But that ETF pays the SEC or the official “standardized” yield slightly lower, 2.7%, than many retail funds today. Given the strong demand for T-bills this year, they currently offer returns between 0.25 and 0.30 percentage points lower than some of the overnight repos that money funds will invest in.