7 Best Money Market Funds for 2024 | Investing

There’s a compelling argument for maintaining a portion of your portfolio in less risky assets, even for the most ardent and risk-tolerant stock market enthusiasts.

Consider the importance of maintaining an emergency fund. Unexpected events, like job loss or medical emergencies, can significantly impact financial stability. Having a safety net provides peace of mind and aids in a quicker recovery.

Holding individual stocks carries its own set of risks. A market-wide sell-off can diminish the value of even fundamentally strong stocks. In such scenarios, cash reserves can act as “dry powder,” allowing investors to purchase shares at lower prices.

Furthermore, for those planning significant near-term expenses, such as a down payment on a house, cash offers unmatched flexibility. Unlike certificates of deposit, which lock up funds for a specified term, cash is readily accessible and liquid.

However, this doesn’t mean one must settle for the minimal interest offered by traditional savings accounts. By opting for a money market fund through a brokerage, investors can enjoy competitive yields with excellent flexibility and safety.

“Money market mutual funds are great investments for short-term, conservative investors,” says Nafis Smith, principal and head of taxable money markets at Vanguard. “This is because they typically invest in very liquid securities with the objective of preserving your capital while also providing income at prevailing market rates.”

These unique mutual funds primarily hold fixed-income instruments like Treasury bills, certificates of deposit, repurchase agreements and commercial paper. In general, these assets are characterized by high liquidity, strong credit ratings and short maturities.

By holding these instruments, money market funds are able to maintain a stable net asset value, or NAV, per share of $1. This means that barring extreme market disruptions, their value does not fluctuate. This relative lack of volatility makes money market funds a haven for investors seeking safety of principal.

In addition, most money market funds pay monthly interest distributions, with yields moving in lockstep with prevailing interest rates. Right now, investors can earn a competitive yield with low risk.

“With short-term interest rates above 5%, money market funds have again become a meaningful part of the investment landscape,” says James Dowd, CEO at North Capital. “Consumers are savvy – they will not settle for a 1% interest rate at their bank if they can easily invest in a money market fund and earn five times the return.”

Here are seven of the best money market funds to buy today:

Investors searching for the lowest fees and highest yields in a money market fund will appreciate NCGXX, which is currently waiving fees and sports a 0% expense ratio. This makes the fund free to invest in and helps boost its seven-day SEC yield up to 5.4%. Despite being an institutional class fund, NCGXX is open to retail investors and readily accessible with no minimum required investment.

“By offering an institutional share class with same-day liquidity to institutions and individuals, we hope to encourage all types of investors to incorporate NCGXX into their liquidity management,” Dowd says. NCGXX operates as a government money market fund, which is legally required to invest at least 99.5% of its assets in U.S. government-issued or guaranteed securities, giving it great safety.

“Money market funds can be a great way to save for short-term goals like buying a car, a down payment or building your emergency savings,” says Sophoan Prak, a certified financial planner and financial advisor at Vanguard. “Generally, if you have a planned expense within one year, a money market fund can be a good investment option for it.” Vanguard’s main offering in this niche is VMFXX.

VMFXX is also a government money market fund, and thus holds a portfolio of U.S. government Treasury bills, obligations, and repurchase agreements collateralized by cash or other government securities. Investors can expect a 5.3% seven-day SEC yield, just a smidge lower than NCGXX’s. VFMXX charges a 0.11% expense ratio and requires a $3,000 minimum initial investment.

VUSXX is also classified as a government money market fund, albeit one that invests more conservatively compared to VMFXX. Unlike VMFXX, VUSXX currently holds 98.7% of its assets in Treasury bills, or T-bills, which are federal government-issued bonds with a short maturity. By doing so, VUSXX delivers an ironclad credit quality and an average maturity of just 43 days, which reduces interest rate risk significantly.

Otherwise, VUSXX functions similarly to VMFXX, with a NAV per share pegged at $1 and monthly income distributions. Currently, investors can expect the same 5.3% seven-day SEC yield offered by VMFXX. While VUSXX’s portfolio of T-bills yields slightly less than VMFXX’s portfolio, it also charges a lower 0.09% expense ratio, which helps it keep net yields similar.

Taxes can eat into the overall returns investors can expect from a money market fund. For example, VMFXX has earned a 10-year annualized return of 1.2%. However, after accounting for taxes, the average investor would have seen that reduced to an annualized 0.71%. This effect is even more pronounced for high-income-bracket investors who plan to hold money market accounts outside of a 401(k) or individual retirement account (IRA).

For these investors, one viable alternative is municipal money market funds like VMSXX. “One of the benefits of investing in VMSXX is receiving federally tax-exempt interest income,” Prak says. Despite paying a lower 3.3% seven-day SEC yield, the overall net-of-tax returns received by high-income investors in this fund could be higher than other options. VMSXX charges a 0.15% expense ratio.

All three of the aforementioned Vanguard money market funds require a $3,000 minimum investment, which may render them inaccessible to investors with smaller portfolios or cash management needs. A viable alternative to consider is SPRXX, which has no minimum initial investment requirement. On Fidelity’s platform, this fund also charges no transaction fees or sales loads.

Unlike the previous funds, SPRXX is a prime money market fund. These money market funds differ from the government variants by being able to hold additional assets like demand notes, time deposits and commercial paper. These corporate securities carry higher risk but can pay higher yields. Investors can expect a 5% seven-day SEC yield with SPRXX, which is lower due to its higher 0.42% expense ratio.

Investors on Charles Schwab’s brokerage platform can also find a no-minimum-investment money market fund in the form of SWVXX. Like SPRXX, SWVXX is also a prime money market fund. It is actively managed to select a portfolio of asset-backed commercial paper, certificates of deposit and time deposits primarily issued by financial institutions, in addition to the usual repurchase agreements.

This fund has been in existence since 1992, having survived market sell-offs during the dot-com bubble, the 2008 financial crisis and the 2020 COVID-19 crash. For investors looking for safety, a track record of resilience during historical financial calamities is an important factor to weigh when selecting a money market fund. SWVXX currently pays a 5.2% seven-day SEC yield and charges a 0.34% expense ratio.

Investors prioritizing environmental, social and governance, or ESG considerations today have a wide variety of equity and even bond funds to pick from. However, these investors can also get a leg up when it comes to cash management needs via funds like PINXX. This money market fund evaluates potential holdings based on MSCI’s screening criteria to ensure compliance with its environmental mandate.

As a prime money market fund, PINXX holds the usual repurchase agreements, certificates of deposit, commercial paper and time deposits. However, it does not hold issuers that are involved in controversial weapons, nuclear weapons, civilian firearms, tobacco, thermal coal, oil sands or those that violate the United Nations Global Compact. PINXX pays a 5% seven-day SEC yield and charges a 0.49% expense ratio.