Money Fund Yields Holding Up
September 11, 2007
Money Fund Yields
Yields on major money funds have held up despite the recent credit market crisis. This is a good sign for investors in the top money funds as it indicates a resilience of those funds to volatility in the short-term securities they hold in their portfolio. The national average is below 5.00% on money funds, but some funds by diversifying their holdings can boost their compounded yield to closer to 5.25% or by extending slightly longer matuity dates on their holdings.
About Money Funds
Money funds can be purchased directly from an issuing company or from a securities firm. Typically these funds hold short-term debt obligations and cash instruments such that the weighted average is 90 days or less. Yields vary based on portfolio holdings and market conditions. Historically money funds have been able to maintain a $1 net asset value by investing in highly-rated or government-backed financial instruments and prevent loss of principal, but investors have no guarantees or federal insurance against losses. The following funds have assets over $100 million and expense ratios below 0.75%. The yield quoted is the 7-day effective yield net of expenses which includes the compounding effect of dividends and is a better direct comparision to the annual percentage yields (APYs) quoted by banks.
DWS Money Market Series Prime Reserve - Class S 5.27%, minimum $1,000
Fidelity Money Market Fund 5.27%, minimum $25,000
Harbor Money Market Fund 5.24%, minimum $1,000
TIAA-CREF Money Market Fund 5.23%, minimum $2,500
Fidelity Cash Reserves 5.23%, minimum $2,500
Vanguard Prime MMF 5.21%, minimum $3,000
McMorgan Principal Preservation Fund 5.20%, minimum $3,000
PayPal Money Market Fund 5.14%, minimum $1
GE Money Market Fund 5.12%, minimum $500
Transamerica Premier Cash Reserve Fund, 5.11%, $1,000
Money funds typically invest in U.S. Treasury securities, U.S. government agency securities, certificates of peposit, commercial paper, eurodollar CDs, corporate notes, and repurchase agreements. To date no investor has lost principal by purchasing a mutual fund money market which was registered with the SEC.
