Do Money-Market Funds Still Make Sense?; For short-term needs, yes; but better yields are available elsewhere
For the past few years, investors could probably have made more money by picking up loose change from the sidewalk than by investing in a money-market mutual fund.</br></br>Money funds are likely to regain appeal once interest rates rise again. Historically, when rates start moving upward, money-fund yields quickly follow, unlike those of bank savings accounts, which can lag.</br></br>But for now, persistently low rates--coupled with uncertainty about a possible regulatory overhaul for money funds--are reasons to avoid using the funds for all but very-short-term parking of cash, financial advisers say.</br></br>Money funds are mutual funds that invest in very-short-term debt issued by governments and large corporations, and that strive to maintain a set $1 share price. The average yield on taxable money funds for individual investors is just 0.01% a year, according to Crane Data LLC of Westborough, Mass. On an investment of $10,000, that is $1 a year.</br></br>Such low yields are unlikely to climb soon, as many market professionals think there is still too much economic uncertainty for the Federal Reserve to start raising short-term rates. Moreover, the reason money funds have been able to offer any yield at all in recent years is that management companies have been waiving billions of dollars in fees.