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 according to BestCashCow is the Vanguard Prime / MMF Investor paying a 7 day trailing yield of 1.64%.

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.


Big Banks Hurting But Many; Community Banks Like Brookline Savings Doing Okay

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While the headlines discuss the problems with the nation's biggest banks, many small community banks are doing great. Low borrowing costs and lack of competition from the big boys is helping the community bank grow quickly.

While the headlines discuss the problems with the nation's biggest banks, many small community banks are doing great.  Low borrowing costs and lack of competition from the big boys is helping the community bank grow quickly.

Steven Syre of The Boston Globe discussed this in an article and singled out two banks in Massachusetts, Brookline Savings Bank and Hingham Institution for Savings.  While the article discussed Massachusetts banks there are thousands of small banks across the country that are also benefiting.  As he writes:

"Access to ultracheap money and fading competition from mortgage companies are proving to be powerful advantages for many smaller banks. "Things are going well, particularly in the context of the economy," says Brookline Bancorp's chief executive, Richard Chapman.

Smaller banks are earning an unusually wide spread between the cost of money to them and the rate at which they lend to customers. They can borrow money from the Federal Home Loan Bank of Boston at rates in the range of 2 percent and use it to fund loans earning as much as 4 percent or even 4.5 percent more."

These banks are stable and offer somewhat competitive rates.  Brookline is offering a 12 month CD at 2.40% APY, which is 85 basis points below the top 1 year cd rate on the BestCashCow rate tables.   Still, that's significantly higher than some of the rates of the big banks.  Bank of America was offering a 12 month CD for only 2.10% APY.  So, for many, community banks offer stability with an above average return.

See the best 1-year CD rates here.


Savings and Certificate of Deposit Rates Still Tumbling - Jan 23, 2009

Rate information contained on this page may have changed. Please find latest savings rates.

The big news this week was the drop today in DollarSavingsDirect's savings rate from 4% APY to 3.5% APY. DollarSavings represented the last 4% APY savings rate and its drop, along with several other banks brought the average rate on savings accounts from the BestCashCow rate table down below 3% APY.

January 23, 2008 Update

The big news this week was the drop today in DollarSavingsDirect's savings rate from 4% APY to 3.5% APY. DollarSavings represented the last 4% APY savings rate and its drop, along with several other banks brought the average rate on savings accounts from the BestCashCow rate table down below 3% APY.

The other big drop was in 12 month (1 year) CD rates, with the average rate falling a whopping 40 basis points from 3.32% APY to 2.93% APY. This was impacted by the removal of First Command Bank from the rate charts after they informed us their accounts are not available to the general public.

As the chart shows, rates continue to drop with no end in site. Looking at the chart, it seems possible that they may bottom out in the 2% APY average range, meaning that rates could come down by another percentage point before the cuts are done. If you locked in a CD in October you should be very happy with that move.

The changes from the pervious week are:

  • Savings Accounts: 7 basis point drop from 3.06% to 2.99% APY
  • 1 Year CD: A whopping 40 basis point drop from 3.32% to 2.93% APY
  • 3 Year CD: 13 basis point drop from 3.26% to 3.13%APY
  • 5 Year CD: 18 basis point drop from 3.82% to 3.64% APY

Note: 100 basis points represents 1%. Thus a drop by 100 basis points would be a drop from 4% to 3%.

Here are the rate of drops for the past five weeks since the Fed dropped rate, in percentage points.

  • Savings Accounts: -.07, -.05, -.11, -.04, -.05 , -0.7
  • 1 Year CD: -.14, -.24, -.16, -.11 , +.08 , -.40
  • 3 Year CD: -0.0, -.33, -.13, -.09, -.16 , -.13
  • 5 Year CD: -.01, -.36, -.08, -.01 ,- .17 , -.18

 

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