Is Your Money Market Mutual Fund Yielding Zero?

In their most recent newsletter, Vanguard had an article about money market funds called Stability for yield: A fair trade? which basically warned investors about leaving their money market funds for other places because the extra return usually comes with extra risk. Usually, yes, but not always!

Of course Vanguard is seeing people flee their money market funds; The Vanguard Admiral Treasury Money Market Fund (VUSXX) is yielding a sad 0.01%. The Vanguard Prime Money Market Fund (VMMXX) is barely beating that at 0.09%. But it’s not their fault, as the average yield on a money market fund is only 0.03%, which means many competitors are earning nothing!

Move Your Money, But Stay Safe

The Vanguard article correctly assumes that such low yields may tempt you to start looking at corporate bonds or funds with longer maturities. But what about the wide world of FDIC and NCUA-insured deposits? The new $250,000 insurance limits per titled accounts are now extended at least through 2013, and with careful titling of accounts, a couple can easily get $1 million covered at one institution.

Here’s a recap of what’s out there:

High-Yield Reward Checking Accounts
These are checking accounts that are still fully insured, usually advertised locally through local credit unions, but also happen to pay a very high interest rate if you jump through some hoops each month. However, if you make a mistake you’ll forfeit virtually all your interest for that month, so it can be tricky. But for the very diligent, their rates are still averaging around 3-5% APY usually on balances up to $25,000. A current example that is available nationwide is Sierra Reward Checking at 4.09% APY on up to $25k, which requires 12 check card purchases each month, a direct deposit/auto-withdrawal, one BillPay per month, and online statements only.

Online Savings Accounts
With most online brokers these days, you can easily link your accounts to online banks and make direct funds transfers. At Vanguard, there is even a little icon that tells me straight up that I can transfer money to and from the money market fund quickly and safely.

Here are some online banks where you’ll likely get a yield that is at least 150 basis points (1.50%) higher than any money market fund, if not much more. One primary drawback here is that you are limited to a maximum of 6 withdrawals per month, as it is a savings account.

  • EverBank is offering 1.10% APY for the first 6 months for new accounts. This rate is higher than any 6-month certificates of deposit currently available.
  • ShoreBank Direct is offering 1.95% APY on its online savings account with $1 to open and no monthly fees.
  • Ally Bank Online Savings recently raised their “no fine print” savings account rate to 0.85% APY as of 11/12/13. No minimums, no monthly fees.

Certificates of Deposit
If you are willing to restrict access to your money for a while (you can get it out early, but must pay a penalty), your yield can go a bit higher, but not that much. As stated above, for 6-months or less go with EverBank. For example, a 12-month CD at Ally Bank will get you 0.98% APY, while stretching out to 3 years will bump you up slightly to 1.20% APY.

In any case, check what your money market fund is yielding right now. Don’t let your cash sit and shrink from inflation in a money market fund, when you can get the same level of government-backed security with a lot more interest elsewhere.


  1. I do have a question regarding the Vanguard money funds, I know it takes $3K to open a fund but I have been unable to find out if there is a minimum balance required or any service charges associated if the balance falls below $3K. I have called and asked a Vanguard rep and he basically said that if you had say $500.00 in the acct they may contact to you and ask to close the acct? It just doesn’t sound very concrete and I have accts. with Vanguard and would like to use it as a cash holdover acct with a low balance. Would appreciate if anyone knows something more concrete on any policy Vanguard has regarding balances on thier money funds.

  2. Vanguard tends to forgive you going below the minimum balance, but if you do fall “significantly” below for a “long” time, they’ll close out the account. I’ve gone below for a while before.

    As you heard from a rep, I really don’t think they have hard numbers, and I imagine with money market funds – as long as you have other investments there as well – they are probably even more lax than compared to say leaving $50 in a S&P 500 fund.

  3. For people who qualify, Alliant CU is offering 2% on savings accounts. 3% on HSAs. IT’s based in Chicago but has branches in Cali. I qualified through a professional membership, but most people I know (in Cali) have Kaiser and qualify through that as well. It’s worth a check of their membership qualifications. (No fees, $5 minimum. Their HSAs are the best ones I have seen – no fees. Most HSA Savings have big fees and piddly interest).

    They also make it extremely easy to fund Living Trust accounts.

    I have an Ally account, but their rates have been sliding with their new name/image. Just finished moving most my money over to Alliant.

  4. Arghhh!!!

    Bank of the Sierra is my rewards checking account and they didn’t notify me they dropped their rate from 4.5% to 4%.

  5. Alexandria makes a good point with Alliant CU. They also have a 1.75% high-rate checking account. All you need to qualify is paperless statements and a recurring deposit (not even necessarily an employer direct deposit, it can be a recurring transfer from another bank). They have a network of free ATMs all over the country, plus the nice feature that you can deposit checks by scanning them at home.

    Anyone can join Alliant. If you don’t meet any of their other qualification categories, you can join your local PTA and qualify that way. Even if you don’t have kids, joining the PTA is still a good cause, and you’ll earn the money back in interest!

  6. Shucks…only got the 4.5 from Sierra for 3 months and now a rate drop. Still kicks everyone else outta the water but still…I don’t understand why anyone would leave money in a money market fund. Makes no sense.

  7. The only reason I would leave some money in a money market fund, basically earning 0% is because it is my dry powder money that I can invest in a hurry if needed and also at this point in time, I’m not bullish at all. The only other option would be a short term bond fund possibly but then again I face principle risk. I have an IRA with Vanguard and would like to have my contribution sit in cash for a while until I feel the market is priced more appropiately then invest. Hell, even if the rate is around 1%, after paying taxs on the interest what was your return on cash???

  8. Why are we still talking about saving money in this climate? The rates are near zero, for God’s sake … do you know how long it takes you to double your money at 0.03%? 2,300 years, that’s how long.

    The name of the game right now is commodities and long-term fixed debt. If I somehow could take out a 30-year loan and purchase a buttload of gold ETF’s, oil, grain, and metal, I would in a blink.

    All savers will continue to be punished.

  9. Do the 12 debit card purchase required by the Sierra checking account have to be purchases made at stores or does paying bills like comcast, at&t etc. using the debit card count?

  10. I just opened a rewards checking account with Endura Financial Credit Union. 4.5%, 12 debit trx, 1 direct deposit, paperless statmes. up to 25k. Way better than my previous which was down to i think 1.59. I am waiting on my checks to set up direct deposit so I havent qualified yet…. looks good tho.

  11. @V

    Check the comments sections of the other posts on this matter for more info. I pay my Verizon bill through Verizon’s online bill pay service, using the debit/credit card option, in increments of $1.01, $1.02, $1.03 … $1.12 so that it is easy to count the number transactions I made that count towards my bill. Although Verizon counts it as a debit card transaction, they do not ask for my PIN and that is good for my security concerns.

    Making an electronic payment through the Sierra online bill pay service is also a requirement that has to be met at least once monthly, and does not double count toward the debit/credit purchase requirement. Another monthly requirement is an electronic transfer and if you have an online account with comcast, at&t, etc. and make a payment through their website to pull funds from your Sierra account, that is counted as an electronic transfer and does not double count as a debit/credit card transaction.

  12. @ Kevin

    Thanks for the details, very helpful! I am still not sure how Verizon’s billpay is counted as a debit card transaction, while with Comcast/at&t, it is counted as an electronic transfer. Is it just arbitrary?

  13. @V

    If the biller’s website accepts CC/debit payments (with a 16-digit card number), then it will count for your 12 card transactions. If the biller’s website wants your routing number and account number, it will be counted as an electronic transfer. It is arbitrary what form of payment a biller will accept (of course).

  14. @ Kevin

    Ah, that makes it very clear! Thanks!! :)

  15. Discoverbank is offering 1.73% APR right now for a savings account. $500 to open, no min bal, no fees.

  16. CNBBankDirect is also offering a 1.70% apy with no monthly fees and $1 minimum to open, with no min bal.

  17. CNB’s been falling rapidly last few month, now it’s just 1.5%

  18. I have an account with ing direct. My money is in a money market fund ticker symbol BDMXX but it is yeilding zero? what is the problem?

Speak Your Mind