The Best Money Market Funds

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Many top banks and brokerage houses offer some of the best money market funds to invest in. If you have extra cash that isn’t invested yet, or if you are looking for a conservative element to add to your portfolio, a money market fund may be just the thing you are looking for. 

While the money deposited into money market funds is not insured by the FDIC or NCUA, the overall inherent risk is low. The best money market funds invest in high-quality, low risk and short-term debt securities to earn investors a modest return.

The 7 best money market fund brokers of 2020

  • Fidelity – Best for online tools
  • Charles Schwab – Best for choices
  • E*Trade – Best for JP Morgan funds
  • Goldman Sachs – Best for institutional investments
  • TD Ameritrade – Best for mobile app
  • T. Rowe Price – Best for research tools
  • Vanguard – Best for great returns
  7-Day Yield Minimum Balance Estimated Earnings
Fidelity 0.01% – 0.05% $1 Varies
Charles Schwab 0.01% – 0.30% $1 Varies
E*Trade 0.00% – 0.10% $1 Varies
Goldman Sachs 0.01% – 0.35% Not listed Varies
TD Ameritrade 0.00% – 0.40% $1 Varies
T. Rowe Price 0.01% – 0.40% $2,500 Varies
Vanguard 0.11% – 0.19% $3,000 Varies

The 7 best money market fund brokers of 2020

Fidelity – Best for online tools

If you’re looking for a money market fund provider that offers flexible options and online evaluation tools, you may want to consider using Fidelity. The investment company offers government, prime and municipal money market fund options that you can invest in. Funds from Fidelity trade under the symbols SPAXX (government), SPRXX (prime) and FTEXX (municipal). 

In addition to these options, Fidelity offers some helpful online tools for evaluation purposes. These tools include mutual fund evaluators, retirement planners, fund pickers, IRA calculators and a lot more. If you’re looking for a mix of healthy fund options, along with some resources to help you build your wealth, check out Fidelity. 

Charles Schwab – Best for choices

Charles Schwab has an impressive number of money market fund options for prime money funds, government and treasury money funds, municipal money funds and variable share price money funds. Many of the funds have a $1 investment minimum, while a few options carry a minimum investment of $1,000,000.

With Charles Schwab, there are no transaction fees to buy or sell any of the money market funds. Detailed information about the different types of accounts available can be found in the company’s dedicated brochure for money market fund accounts.

E*Trade – Best for JP Morgan funds

E*Trade made its name with the $7 trade that quickly grew into no-fee trades. The company, headquartered in Arlington, VA, has been in business since the early 1980s. At E*Trade, uninvested cash may be put into a money market account. The brokerage firm offers three options, all with JP Morgan.

The JP Morgan US Government Money Market Fund, Capital Class (OGVXX), currently offers the highest yield and is available for managed accounts. While the current rate listed in the chart reflects the 7-day moving average, it does not paint a complete picture of how the fund did last year. In 2018, the fund earned 1.72%.

Goldman Sachs – Best for institutional investments

Founded in the mid-1800s, Goldman Sachs has continued to be a banking powerhouse for over a century now from its New York, NY headquarters. If you’re looking to invest directly through Goldman Sachs, you will need to be an institutional investor. According to the company’s website, all of the mutual funds are listed as institutional.

If you do want to invest in Goldman Sachs money mutual funds, you may be able to do so through your current brokerage house or through a separate investment partner. This is much like how you can invest in JP Morgan money market funds through E*Trade.

TD Ameritrade – Best for mobile app

At TD Ameritrade, you’ve got 28 different money market mutual funds to choose from. Options include taxable and tax-free options from JP Morgan, state funds and other providers. The actual size of each fund ranges from as little as $554 million to as large as $219 billion.

Every fund offered through TD Ameritrade comes with no transaction fees and no short-term redemption fees. Plus, a large percentage of the funds carry a minimum investment requirement of only $1. In comparison, some of the larger agency-class funds require a minimum investment of $1 million. The company’s website and mobile app also offer streamlined tools to help you sort the different funds, see pertinent information, look at historical returns and find the right fit.

T. Rowe Price – Best for research tools

Founded in 1937, T. Rowe Price is an investment management firm headquartered out of Baltimore, MD. As of 2019, the company had over 1.12 trillion under management, with over 7,000 employees.

When it comes to money market fund options with T. Rowe Price, you’ll have eight different options to choose from. What’s great about the platform is that you have tons of tabs, search functions and sort functions to help you research which fund is the best pick for you. 

You can sort by volatility, annual yields, 7-day yields, daily yields, expense ratio or just about any other metric. If you like the ability to choose your investments with extensive and easy to process data, T. Rowe Price may be the option you’re looking for.

Vanguard – Best for great returns

Vanguard has historically been a well-known company for the quality of its mutual funds and its returns. When it comes to money market funds, the company has eight different options for you to choose from. On the website, the different funds are separated by taxable and tax-exempt and come with all the data and metrics you could ever want to make a selection.

Compared to the rest of the industry, Vanguard boasts that 100% of its low-cost market funds have surpassed their peer-group averages over the past decade. If you’re looking for great options, solid returns and a well-known name in mutual funds, check out what Vanguard has to offer.

What is a money market fund?

A money market fund is a type of mutual fund investment account. As opposed to some other types of investment accounts, money market funds only invest in debt securities with short maturities (highly liquid) and minimal credit risk. Compared to other types of investment accounts, a money market fund generally carries the lowest level of risk based on the types of investments utilized.

It’s important to note that a money market fund is not the same as a money market account (MMA). An MMA is an account that’s similar to a checking or savings account that is FDIC or NCUA insured and carries no risk. A money market fund is an investment account that is not insured by either organization and does carry risk, though it’s pretty minimal.  

Tip: Make sure you understand the differences between money market funds and money market accounts. The major difference is that money market funds carry risk, while money market accounts have no risk and are insured through the government. 

How does a money market fund work?

Much like a traditional mutual fund or a stock, a money market fund issues shares for purchase to interested investors. The money market fund is managed by either an individual, artificial intelligence or a team. 

The invested money is diversified across a mix of short-term, high-quality and low-risk debt securities. In return, the investors earn money on these investments. Earnings are paid out as dividends to investors based on how many shares they own. Share value is generally kept as close to $1 as possible.

Types of money market funds

While all money market funds invest in low-risk, high-quality, short-term debt securities, the exact types of investments vary from fund to fund. Each type of fund may be better suited for different purposes and investor goals.

  • U.S. Government Agency Funds – These money mutual funds invest in securities from federal government agencies at home and sometimes abroad. You can expect to get slightly higher yields than some other money market funds because of slightly higher risk. This is truer with funds investing in foreign governments and emerging markets.
  • U.S. Treasury Funds – One of the most common types of money market funds is the U.S. Treasury fund. As you may have guessed, these funds invest in treasury funds, helping to make them the lowest risk fund options in this area. One additional perk of U.S. Treasury funds is that they are tax-exempt.
  • Municipal Money Funds – Similar to the U.S. government agency funds, these tax-free funds invest in government entities. The only difference is that the investments are made in state and local-level agencies rather than the federal level. You will generally find these funds in higher-taxed states like New York, California and Maryland. If you are a resident of these states, you may be able to get additional tax benefits. For full details, check with a tax professional who’s well-versed in your state’s municipal money funds rules.
  • Diversified Taxable Funds – These forms of money market funds do not invest in government entities like the earlier mentioned options. Instead, they focus efforts elsewhere like the private sector, which can mean higher risk but also the potential for higher returns. When choosing one of these funds, it becomes even more important to look at the quality of the investments and where the bulk of funds are allocated.

Tip: If you are interested in a diversified taxable fund, make sure to take the time to look through the asset allocation to see what type of investments are being made. While this is important with every fund you invest in, it becomes more important with this specific type. 

Pros and cons of money market funds

Compared to other types of investing, money market funds have areas they excel in and some drawbacks to be aware of. Before you decide to invest in a money market fund, make sure you understand the pros and cons to make the most informed decision possible.

Pros

  • Lower risk – Due to the nature of the securities invested in, a money market fund generally carries significantly less risk than a traditional investment account or mutual fund.
  • Higher liquidity – Money market funds invest in debt securities that have short maturities. In other words, your money will be very liquid and can be accessed much more quickly than other forms of investing. At least 30% of a fund’s investments must be in weekly assets.

Cons

  • Not insured – Unlike some other forms of investments, like savings accounts and CDs, money market funds are not FDIC or NCUA insured. While the risk is inherently very low, there is still a risk, and is something to be considered when developing your portfolio.
  • Lower returns – Because the risk with money market funds is quite low, the potential returns you will see are also going to be lower than with other more risky investments.

Tip: If you need a higher return than what you’re seeing with a money market fund, you will need to sacrifice some liquidity or accept more risk with a different investment type. 

How to get started

Getting started with the best money market funds is easy. If you already have a brokerage or investment account, you should be able to immediately invest — as long as you have free cash in your account. If you don’t already have a brokerage account, you will need to open one. Doing so will not have an account minimum at most places and can usually be done over the phone, online or in person at a branch location.

Once you have your account, you need to do some research to see which fund is best for you. Ideally, you’ll want to look at past returns, the quality of the debt securities being invested in, what option fits you best and what fees are charged by the broker.

The final word

The best money market funds can help round out to an existing portfolio or a great place to park unused money. While the accounts don’t offer FDIC or NCUA insurance like many other fixed-income investment products, the overall risk is still generally quite low. If you need an investment that truly has no risk, you may want to look into a savings account, money market account or a CD. Remember, though, some of these investments will carry lower returns and may have reduced liquidity.