How A Money Market Account Can Double Your Income
April 30, 2009
Assets in money mutual funds tops the $3 trillion mark in the United States. Of that impressive total, over $1 trillion represents money held in retail money funds by individuals. That's an enormous amount of money sitting, relatively idle, in cash accounts. The next question should be: What kind of interest rate are all these people who are sitting on cash in their brokerage accounts earning? Unfortunately, the answer is not very much. The average yield on a retail money fund is now reported to be below 0.50%. If you are invested in a Treasury-only money fund it's even worse, your yield could very easily be below 0.10%. Even the big-name blue chip mutual fund companies listed below are offering below 1% yields on their money market fund accounts:
Vanguard Prime MMF 0.87%
American Century Prime Money Market Fund 0.91%
TIAA-CREF Money MArket Fund 0.73%
Putnam Money Market Fund 0.81%
AARP Money Market Fund 0.54%
The Cash Savings Alternative
The solution to the aggrevation of earning less than 1% on your cash? Switching to a bank money market account can double the yields seen on money funds. Money market accounts from Discover Bank, AIG Bank, and Principal Bank, to name a few, are offering over 2.00%. It is a unqiue point in history that the yields on a bank money market accounts are actually DOUBLE the yields on mutual fund money market accounts. If you are tempted by the extra yield, investors can easily open up a high-yielding bank money market account and link it online to their brokerage account. This makes it easy to transfer any extra cash from the low-yielding brokerage cash account to the higher-yielding bank money market account. It also makes it easy to transfer money back to your brokerage account if you see a buying opportunity in stocks, mutual funds, or bonds.
Even if your cash balances are not extremely high, it is worth the effort to make the switch to the higher-yielding bank money market account. What if the difference in interest rates bought you just one nice lunch a month? Or even a cup of coffee a week? Don't we always like free gifts? Make the switch today and consider the extra interest as a free gift!
