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The Best Money Market Funds of 2023

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The Best Money Market Funds of 2023

In the midst of the rising interest rates of 2022 and 2023, there’s a bright side: better yields for investors. People are now turning their attention to investments like certificates of deposit and high-yield savings accounts. These options offer a way to keep cash safe while earning competitive and consistent income.

For those who prefer a brokerage account, money market funds provide a viable alternative to CDs and savings accounts. These funds are known for their relative stability and the steady income they generate, making them a safe haven during times of economic uncertainty.

Ryan Johnson, a certified financial planner and managing director of investments at Buckingham Advisors, recommends using money market funds for any extra cash that investors plan on spending in 2023. The benefits include next-day liquidity and the advantage of currently enjoying a high-interest rate. Money market rates usually follow the federal funds rate with a small lag.

To assist investors in finding the best money market funds, our team conducted a thorough ranking of the available options. We considered various factors such as the fund’s assets under management, expense ratios, minimum required investment, and track record.

Compare the best money market funds

FUND (TICKER)10-YEAR RETURN AS OF JUNE 30EXPENSE RATIOSHARE CLASS AUMMINIMUM INVESTMENT
Vanguard Federal Money Market Fund (VMFXX)0.94%0.11%$249.8 billion$3,000
Vanguard Treasury Money Market Fund (VUSXX)0.93%0.09%$54.8 billion$3,000
Schwab Value Advantage Money Fund – Investor Shares (SWVXX)0.93%0.34%$209.9 billion$0
Schwab Treasury Obligations Money Fund – Investor Shares (SNOXX)0.79%0.34%$66.5 billion$0
Fidelity Money Market Fund (SPRXX)0.91%0.42%$81.7 billion$0
Fidelity Government Money Market Fund (SPAXX)0.76%0.42%$268 billion$0

Why other funds didn’t make the cut

We started by narrowing down the selection to money market funds charging an expense ratio of less than 0.5%. By doing this, we aimed to help investors retain more of their returns since funds with high expense ratios tend to eat into their profits over the long term.

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Next, we considered only funds with a performance history of at least 10 years and assets under management (AUM) exceeding $5 billion. This approach allowed us to identify well-established funds backed by large providers with a proven track record of performance and economies of scale.

In our rankings, we focused solely on government, Treasury, and prime money market funds, omitting municipal money market funds. While municipal funds offer tax benefits for investors in higher income tax brackets, their lower yields make them less suitable for the average investor.

Additionally, we excluded money market funds designed exclusively for institutional investors and the institutional share classes of some funds. Such funds usually demand a significant minimum investment, which hinders accessibility for retail investors.

Finally, to ensure inclusivity, we set a reasonable minimum initial investment of $3,000 for the money market funds in our rankings. This approach eliminated funds with exorbitant minimum investment requirements, making our rankings more accessible to beginner investors with smaller accounts.

Methodology

Our ranking of the top money market funds is based on specific criteria to ensure the selection of strong investment options:

  1. AUM: Each money market fund on the list has a minimum AUM of $5 billion for their respective share class, signifying their stability and popularity.
  2. Share class: The funds included in the ranking are open to retail investors, not just institutional investors, making them accessible to a broader range of individuals.
  3. Minimum investment: To be considered for this ranking, a money market fund must have a minimum investment requirement of $3,000 or less, allowing smaller investors to participate.
  4. Type: The ranking focuses on government, prime, and Treasury money market funds, while excluding municipal money market funds.
  5. Expense ratios: All funds on the list have a net expense ratio of 0.5% or less, ensuring that investors can keep more of their returns.
  6. Track record: Eligible money market funds have a performance history of at least 10 years, demonstrating their ability to navigate various market conditions.
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Remember that while these funds were chosen by an experienced fund analyst, it’s essential to conduct your own research before investing. Everyone’s financial goals and risk tolerance are different, so make sure the selected funds align with your specific needs and objectives.

Final verdict

Money market funds offer a wide range of options for investors. To make the best choice, it is advisable to opt for funds from well-established providers with high assets under management (AUM), low expense ratios, and a proven track record of stable performance. These factors can contribute to better returns and reduced risks for investors.

Our top recommendation for the best money market fund is the Vanguard Federal Money Market Fund (VMFXX). This fund stands out due to its consistent historical performance, attractive current yields, and low expense ratios. Additionally, its association with Vanguard, a reputable and established firm, provides further reassurance to investors.

When considering money market funds, it is essential to prioritize stability and reliability. Established providers tend to offer a more secure investment environment, while low expense ratios ensure that investors retain a larger portion of their returns. Furthermore, funds with no or small minimum investment requirements open the door to a broader range of investors, regardless of their initial capital.

Among the available choices, the Vanguard Federal Money Market Fund (VMFXX) emerges as an excellent option. Its strong historical performance instills confidence in its ability to weather market fluctuations. The fund’s attractive current yields provide a competitive edge, making it an appealing choice for investors seeking consistent returns.

In conclusion, for those seeking a reliable and high-performing money market fund, Vanguard Federal Money Market Fund (VMFXX) is the top choice. Its established reputation, low expenses, and impressive performance over time make it a standout option in the market. By selecting such a fund, investors can have peace of mind knowing that their money is in capable hands and positioned for potential growth.

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What is a money market mutual fund?

Money market mutual funds aim to provide a secure investment option that generates consistent income based on prevailing interest rates. These funds can be categorized into four types: government, prime, Treasury, and municipal, the latter being tax-exempt.

To achieve their objectives, money market funds primarily invest in short-term, high-quality fixed-income securities. Examples of such instruments include Treasury bills, commercial paper, certificates of deposit (CDs), and repurchase agreements. The choice of these securities is driven by their relatively low risk of default and low sensitivity to changes in interest rates. Consequently, the net asset value of the money market fund remains stable at $1 per share.

The interest earned from the underlying securities is collected by the money market fund and then distributed periodically to the investors as income. This distribution process makes money market funds an attractive option for investors looking to preserve their capital while earning some income.

Overall, money market funds are often utilized as a means to park excess cash in a portfolio safely, offering a balance between security and income potential.\

How do money market funds work

Money market funds operate by pooling the investments of multiple investors and using the capital to invest in a portfolio of fixed-income securities. These securities are carefully chosen based on three key characteristics: high credit quality, short maturity, and good liquidity. While Treasury bills, commercial paper, CDs, and repurchase agreements are commonly included, the specific assets in a money market fund can vary depending on its type.

The primary goal of a money market fund is to maintain a stable net asset value per share, typically set at one dollar, regardless of market conditions. This stability ensures that the fund remains relatively immune to market fluctuations, making it an appealing choice for investors seeking safety and capital preservation.

Aside from capital preservation, money market funds also offer a source of regular income. This income is generated from the interest earned by the underlying portfolio of securities. However, it’s important to note that the level of income fluctuates in response to prevailing interest rates. Investors can expect to receive income distributions periodically, usually on a monthly basis.

In summary, money market funds are designed to provide both stability and regular income to investors. By investing in short-term, high-quality securities, these funds aim to maintain a constant net asset value per share while generating interest income for their shareholders.