Rates on Money Market Funds, US Treasuries, Bank Money Market Accounts, and Bank CDs

US Treasuries, money funds, and bank deposit accounts posted their lowest rates in years earlier in 2008 after the Federal Reserve lowered interest rates aggressively. Of the three types of cash investments only money funds have not seen an increase in rates in the last month as the market has factored inflation expectations and the potential for increases in the Fed Funds rate by the central bank. Money fund yields which have fallen from over 5% in January to current levels between 2% and 2.50% have been hit with two factors this year: (1) lower interest rates paid on the underlying securities held in the funds and (2) mortgage-security crises which have led to a more conservative approach (and thus lower yielding) by many mutual fund managers. The forecast for cash investing for the second half of this year is for a slow climb back over 4% for many of the leading online bank money market and savings accounts and the potential for money funds to move back up over 3% if conditions are right. US Treasury yields which are more sensitive to the economic news released daily are expected to increase with the yields on the longer end of the yield curve expected to approach 5%. The forecast for higher interest rates is a reaction to jawboning from Federal Reserve officials and economists to the risks of inflation in the economy. An alternate scenario would be an economy that slows down to a protracted recession - which in case might lead to lower interest rates. A snapshot look at some of today’s available yields on cash investments is listed below:

Mutual Fund Money Markets (Money Funds)

Dreyfus BASIC Money Market Fund 2.61%, minimum $25,000

Touchstone Money Market Fund 2.62%, minimum $2,500

Fidelity Cash Reserves 2.56%, minimum $2,500

Fidelity Money Market Fund 2.52%, minimum $25,000

PayPal Money Market Fund 2.46%, minimum $1

US Treasury Yields

90-day 1.93%

180-day 2.20%

2-year 3.02%

Bank Money Market Account Rates

EverBank, 4.01% APY, $1,500 minimum deposit

IndyMac Bank, 3.85%, $10,000 minimum deposit

Corus Bank, 3.82%, $10,000 minimum deposit

Bank CD Rates

90-day CD, Earthstar Bank, 3.50% APY, $500 minimum deposit

1-year CD, AmTrust Direct, 4.00% APY, $1,000 minimum deposit

5-year CD, KeyDirect, 5.00% APY, $5,000 minimum deposit

There is a wide discepancy right now between what banks and mutual fund companies are paying on cash accounts. It is not uncommon to see a bank paying less than 1% on a money market account or savings account and a money fund to be yielding less than 2%. Consumers can easily improve their yields by searching online for better deals from online banks or mutual fund companies.