As interest rates continue to rise, investors now have a few options as to where they can store their short-term cash.
“Now that we have begun seeing yields pop up to more meaningful levels, it’s important to shop around,” said Morningstar’s Benz.
The Crane 100 Money Fund Index, which measures the 100 largest money market funds, has an annualized seven-day current yield of 1.79 percent. The Vanguard Prime Money Market Fund (VMMXX) offers yields just over 2 percent.
The national average rate on money market accounts for deposits under $100,000 is 0.13 percent as of Aug. 27, according to the Federal Deposit Insurance Corp.
Some banks, however, offer rates approaching 2 percent on these accounts.
Bear in mind that money market funds aren’t the same as money market deposit accounts: The latter is FDIC-insured, up to $250,000 per depositor, per insured bank, just like your CDs and checking and savings accounts.
Another cash alternative would be your brokerage sweep account, the bank account where your firm socks away dividends and portfolio income. The downside: Firms are paying about 0.25 percent on these deposits.
Whatever you choose, consider the tradeoff between your yield and safety, and strive to select a low-cost option.
“If it’s not cheap, and the yield is compelling, there may be some risk-taking going on under the hood,” said Benz.