Money Market Fund Returns Drop to Record Lows

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Market market fund rates dropped to record lows this week driven by the drop in short term treasury yields.  The top money market fund rate according to BestCashCow is the Vanguard Prime / MMF Investor paying a 7 day trailing yield of 1.64%.  That's down from a top rate of 2.56% in June 2008 and 4.36% in January 2008.

Per Bloomberg:

The average seven-day yield on taxable money-market funds fell below 0.50 percent for the first time in history, to 0.48 percent for the week ending yesterday, according to data compiled by IMoneyNet of Westborough, Massachusetts. Tax-free and municipal money funds remained at an all-time low of 0.29 percent for the second week.

Money market funds, unlike money market accounts are not FDIC insured, although some money may be insured in the wake of the Fed's action to shore up money market funds.  In September of 2008, the Fed announced it was backing money in money market funds that were deposited before September 19, 2008 for a period of one year.

Still, it's hard to get excited about money market funds at these low rates.  Investors may want to consider savings and money market accounts that are paying over 2 percentage points more in interest and are FDIC insured up to $250,000 through December 31, 2009 and $100,000 after that.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • ktexas

    January 30, 2009

    Tax-exempt money market fund rates seem to have fallen even more. The Fidelity Municipal Money Market Fund (FTEXX) is now only paying only 0.32% (0.49% tax equivalent).

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