Advantages of Money Market Funds

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Money Market Funds

Advantages of Money Market Funds

Justin Kuepper Aug 27, 2019

Let’s take a closer look at the benefits that money market funds offer over alternative investments.

Use the Mutual Funds Screener to find the funds that meet your investment criteria.

1. Safer and More Liquid Than Bonds

Money market fund diversification
Source: SEC
Money market fund liquidity
Source: SEC

  • Government – Government money market funds hold 99.5% cash, U.S. government securities or repurchase agreements that are fully collateralized, making them the safest option.
  • Prime – Prime money market funds invest in any eligible U.S. dollar-denominated money market instruments, including certificates of deposit, commercial paper, and foreign debt.
  • Municipal – Municipal money market funds typically hold 80% municipal securities that are exempt from federal and/or state taxes.

Check out the different types of money market funds here

2. Better Yields Than Deposit Accounts

Money market fund yields
Source: SEC

3. Superior for Some Cash Management

Money market fund maturity
Source: SEC

4. Low Initial Investment and Expense Ratio

Some money market funds with low expenses include:

  • Vanguard Federal Money Market Investor Fund (VMFXX)
  • Vanguard Municipal Money Market Investor Fund (VMSXX)
  • Vanguard Treasury Money Market Investor Fund (VUSXX)

These funds have a minimum investment of $3,000 in a qualified IRA, but the expense ratio ranges from 0.09% to 0.18%, which is much lower than the respective category averages.

By comparison, the Schwab Government Money Fund (SNVXX) has no minimums or transaction fees, but charges a net expense ratio of 0.32%, making it more expensive to own.

Follow our Money Market Funds Section to learn about money market funds.

The Bottom Line

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