There’s a silver lining to the rising interest rate environment of 2022 and 2023: better yields. Investments like certificates of deposit and high-yield savings accounts are garnering attention as a way for investors to keep cash safe while earning competitive levels of consistent income.
For those investing in a brokerage account, money market funds are a viable alternative to CDs and savings accounts. Known for their relative stability and modest yet steady income streams, money market funds can serve as a haven, especially during economic uncertainty.
“We suggest investors use money market funds for any extra cash that they have now that they plan on spending in 2023,” says Ryan Johnson, a certified financial planner and managing director of investments at Buckingham Advisors. “The benefits include next-day liquidity while currently enjoying a high-interest rate, as money market rates roughly follow the federal funds rate with a small lag.”
To help investors identify the best money market funds, our team ranked the universe of options based on stringent criteria, including but not limited to the fund’s assets under management, expense ratios, minimum required investment and track record.
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Best money market funds
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Vanguard Federal Money Market Fund (VMFXX)
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Vanguard Treasury Money Market Fund (VUSXX)
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Schwab Value Advantage Money Fund – Investor Shares (SWVXX)
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Schwab Treasury Obligations Money Fund – Investor Shares (SNOXX)
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Fidelity Money Market Fund (SPRXX)
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Fidelity Government Money Market Fund (SPAXX)
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Compare the best money market funds
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Why other funds didn’t make the cut
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Methodology
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Final verdict
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What is a money market mutual fund?
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How do money market funds work
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Frequently asked questions (FAQs)
Best money market funds
Vanguard Federal Money Market Fund (VMFXX)
Net expense ratio
0.11%
AUM
$254.7 billion
What you should know
VMFXX is a straightforward example of a money market fund. Considered one of the most conservative funds in Vanguard’s lineup, VMFXX’s portfolio is almost entirely invested in cash, U.S. government bonds or repurchase agreements collateralized by U.S. government bonds, all of which have short-term maturities. The fund’s yield fluctuates with prevailing interest rates. Like most money market funds, VMFXX seeks to maintain a stable net asset value per share of $1.
Pros and cons
Pros
- No purchase, redemption or 12b-1 fee.
- A low expense ratio of 0.11%.
- A high AUM and a long track record dating back to July 1981.
Cons
- Requires a $3,000 minimum investment.
- Yields will fluctuate with interest rate changes.
- Historically lower returns compared to stocks and bonds.
More details
- Minimum investment: $3,000.
- Fund 10-year annualized return as of June 30: 0.94%.
Vanguard Treasury Money Market Fund (VUSXX)
Net expense ratio
0.09%
AUM
$58.1 billion
What you should know
VUSXX is an example of a Treasury money market fund. Currently, at least 80% of this fund is required to be held in Treasury bills or repurchase agreements fully collateralized by Treasury securities. Compared to other assets, Treasurys are considered very low-risk due to their excellent credit quality and short maturity, which virtually immunizes them from default and interest rate risk.
Pros and cons
Pros
- No purchase, redemption or 12b-1 fee.
- A low expense ratio of 0.09%.
- A high AUM and a long track record dating back to December 1992.
Cons
- Requires a $3,000 minimum investment.
- Yields will fluctuate with interest rate changes.
- Historically lower returns compared to stocks and bonds.
More details
- Minimum investment: $3,000.
- Fund 10-year annualized return as of June 30: 0.93%.
Fidelity Money Market Fund (SPRXX)
Net expense ratio
0.42%
AUM
$89 billion
What you should know
The fund’s overall portfolio AUM, which includes all other share classes of the fund — such as institutional shares — sits at 89 billion, having accrued steadily since the fund’s debut in January 1989. The fund’s portfolio is typical of a prime money market fund, split between U.S. Treasury and government agency repurchase agreements, commercial papers from financial sector companies and CDs.
Pros and cons
Pros
- No transaction fees or 12b-1 fees.
- No minimum required investment.
- High AUM and a long track record dating back to January 1989.
Cons
- Charges a higher 0.42% expense ratio.
- Yields will fluctuate with interest rate changes.
- Historically lower returns compared to stocks and bonds.
More details
- Minimum investment: $0.
- Fund 10-year annualized return as of June 3o: 0.91%.
Fidelity Government Money Market Fund (SPAXX)
Net expense ratio
0.42%
AUM
$278.3 billion
What you should know
Investors looking to avoid commercial paper from corporations in their money market fund can consider SPAXX, which has been around since February 1990. As a government money market fund, SPAXX’s portfolio consists mostly of U.S. government repurchase agreements, agency-issued floating rate and fixed-rate securities with a short maturity and high credit quality. It also has a small allocation to U.S. Treasury bills and Treasury coupons.
Pros and cons
Pros
- No transaction fees or 12b-1 fee.
- No minimum required investment.
- Better credit quality compared to prime money market funds.
Cons
- Charges a higher 0.42% expense ratio.
- Yields will fluctuate with interest rate changes and are lower compared to prime money market funds.
- Historically lower returns compared to stocks and bonds.
More details
- Minimum investment: $0.
- Fund 10-year annualized return as of June 30: 0.76%.
Compare the best money market funds
| Fund (ticker) | 10-year return as of June 30 | Expense ratio | Minimum investment | |
|---|---|---|---|---|
| Vanguard Federal Money Market Fund (VMFXX) | 0.94% | 0.11% | $254.7 billion | $3,000 |
| Vanguard Treasury Money Market Fund (VUSXX) | 0.93% | 0.09% | $58.1 billion | $3,000 |
| Schwab Value Advantage Money Fund - Investor Shares (SWVXX) | 0.93% | 0.34% | $229.3 billion | $0 |
| Schwab Treasury Obligations Money Fund - Investor Shares (SNOXX) | 0.79% | 0.34% | $67.8 billion | $0 |
| Fidelity Money Market Fund (SPRXX) | 0.91% | 0.42% | $89 billion | $0 |
| Fidelity Government Money Market Fund (SPAXX) | 0.76% | 0.42% | $278.3 billion | $0 |
Why other funds didn’t make the cut
We began by filtering out money market funds that charge an expense ratio of 0.5% or higher. Given the long-term expected return of these funds tends to be low, minimizing fees can help investors keep more money in their pockets.
Next, we filtered out funds with less than a 10-year performance history and lower than $5 billion in AUM. This helped us identify established funds from large providers with economies of scale and a long track record of performance.
We also restricted our rankings to government, Treasury and prime money market funds. This meant excluding municipal money market funds. While these tax-exempt funds may be advantageous for investors in a higher income tax bracket, their yields tend to be lower, making them less suitable for the average investor.
We also filtered out money market funds only accessible to institutional investors and the institutional share classes of some money market funds. These usually require a large minimum investment, which makes them far less accessible to retail investors.
Finally, to ensure accessibility, we set a limit of $3,000 for the minimum investment a money market fund can initially require. This filtered out money market funds with high minimum investment requirements, making the rankings more accessible to beginner investors with smaller accounts.
Methodology
Our ranking of the top money market funds was created by applying a screen of several “must-have” metrics:
- AUM: All money market funds on this list have accrued a minimum AUM of at least $5 billion for their respective share class.
- Share class: All money market funds on this list represent share classes open to retail investors, not institutional investors.
- Minimum investment: To qualify for this ranking, a money market fund must have a minimum investment requirement of $3,000 or less.
- Type: This list only ranks government, prime and Treasury money market funds, with municipal money market funds excluded.
- Expense ratios: All money market funds on this list must have a 0.5% or less net expense ratio.
- Track record: A money market fund must have at least a 10-year performance history to be eligible for this list.
An experienced fund analyst selected the funds above, but they may not be right for your portfolio. Before purchasing any of these funds, do plenty of research to ensure they align with your financial goals and risk tolerance.
Final verdict
The options for money market funds are vast. Still, most investors would do well sticking to funds from established providers with high AUM, low expense ratios, small or no minimum investments, and a long track record of stable performance.
Our pick for the best money market fund overall is Vanguard Federal Money Market Fund (VMFXX), thanks to a combination of historically consistent performance, excellent current yields, low expense ratios and the backing of a reputable, established firm in the form of Vanguard.
What is a money market mutual fund?
Money market mutual funds are designed to provide greater safety of principal while paying out consistent income at prevailing interest rates. They can come in four types: government, prime, Treasury or municipal, also known as tax-exempt.
They primarily invest in short-term, high-quality fixed-income securities such as Treasury bills, commercial paper, CDs and repurchase agreements. These instruments tend to have a low risk of default and low-interest rate sensitivity, which allows the money market fund to maintain a stable net asset value of $1 per share.
The interest paid out by these underlying instruments is collected by the money market fund and distributed periodically to investors as income. Many investors use money market funds as a way to park cash in a portfolio for safety and some income potential.
How do money market funds work
Money market funds work by pooling the capital of numerous investors together and investing it in a portfolio of fixed-income securities selected for three traits: high credit quality, short maturity, and good liquidity. This usually includes Treasury bills, commercial paper, CDs and repurchase agreements, but the exact composition of a money market fund will depend on its type.
The underlying portfolio of securities in a money market fund helps it achieve a dual objective. The first is maintaining a stable net asset value per share of a dollar, regardless of market conditions. This eliminates volatility for the money market fund and makes it attractive to investors looking for safety.
The second objective is regular income. Distributions come from the interest income generated by the money market fund’s underlying portfolio. In general, the level of income will fluctuate in lockstep with prevailing interest rates. Investors will receive income distributions periodically, usually monthly.
Frequently asked questions (FAQs)
Money market funds are not insured by the Federal Deposit Insurance Corp. The FDIC only insures certain types of bank accounts and products — such as checking and savings accounts, money market accounts and CDs — up to a certain limit.
The FDIC does not insure investment products, which includes money market funds. Therefore, it is possible to lose money when investing in a money market fund, though it is generally considered a very low-risk investment.
All investments carry risks, but some are safer than others regarding the risk of principal loss. In general, money market funds are considered safer investments than other types of funds, such as stock or bond funds, thanks to their holdings, which tend to be high-quality, short-term fixed-income investments with excellent liquidity.
This makes money market funds more suitable for investors looking to preserve capital since they don’t incur the same volatility as stock and bond funds. However, “safe” does not mean “risk-free.”
There is always a degree of risk involved with any investment, including money market funds. As noted, money market funds are not FDIC insured, which makes them less safe than a savings account or certificate of deposit.
Recessions tend to affect investments negatively, but money market funds are usually resilient due to the short-term and high-quality nature of the securities they hold and the regulatory reforms implemented in 2016 to further improve their safety.
While they are not entirely immune to the effects of a recession, they are designed to maintain a stable net asset value of $1 per share, even during economic downturns. Historically, there have been a few instances when a money market fund “broke the buck,” with its net asset value per share plunging below $1.
The most notable instance of this was during the 2008 financial crisis when the Reserve Primary Fund “broke the buck” after the failure of Lehman Brothers. But even then, stock market investors experienced more substantial losses in comparison.
