Not all investments are exciting, interesting vehicles to research, invest in and watch over. Yet the slow but steady incremental increase in a money market fund is considered safe and reliable. Money market funds, offered by mutual fund companies, hold short-term debt instruments and are not insured. Returns are usually slightly higher on money market funds than money market accounts. Money market accounts are savings accounts offered by FDIC-insured financial institutions.
Money Market Funds
Money market funds are mutual funds providing a place to deposit cash not needed immediately but available at any time. The funds contain short-term debt securities with an average maturity of 90 days. The short-term nature of the securities limits the risk of investing in these uninsured funds. Money market funds may be composed of commercial debt, Treasury instruments, government securities or municipal debt.
Fund Average Yields
Money market funds invest in short-term debt instruments. The Schwab Value Advantage Money Market Fund opened to investors in 1992. Average annual yield from April 30, 1992 to April 30, 2011 was 3.44 percent. The 10-year annual return from March 31, 2002 to March 31, 2011 was 2.12 percent. The five-year return from 2006 to 2011 was 2.29 percent. The one-year return from March 21, 2010 to March 31, 2011 was 0.01 percent. The return for the first quarter of 2011 was 0.00 percent -- zero, flat, absolutely nothing. Many money market funds probably lost money during the first months of 2011 when considering return on their short-term investments, management and other fees. The financial firms do not want to show a negative return on their money market funds. They support the funds and do not register a loss.
Money Market Fund Rates, 2002 to 2011
Interest rates for the first decade of the 2000s started low, rose to a decent level and plummeted to the lowest point in decades. The Fidelity Cash Reserves money market fund yielded 1.62 percent in 2002. Rates increased to an annual yield of 5.06 percent in 2007 and declined to 2.89 percent in 2008. Annual yield averaged 0.06 percent in 2010 and as of April 30, 2011 was 0.01 percent. That is not a typo; many money market funds yielded zero in the first months of 2011.
Granddaddy of Money Market Funds
The Vanguard Federal Money Market Fund opened on July 13, 1981. The average annual return since inception, from 1981 to April 2011, was 5.17 percent. The average annual 10-year return, from May 30, 2001 to May 31, 2011 was 2.12 percent. The one-year return on the fund from May 31, 2010 to May 31, 2011 was 0.02 percent. The fund’s return for 2011 as of May 31, 2011 was 0.00 percent.
Largest Money Market Funds
The largest money market funds as of April 30, 2011, based on assets held with the largest funds first, were managed by the following companies: Fidelity, JPMorgan, Federated, Dreyfus, Vanguard, BlackRock, Schwab, Wells Fargo, Goldman Sachs and Invesco.