In a rising rate environment, many investors are wondering where they should keep their excess cash. For many years, the difference in annual interest rates between savings account and brokerage money market funds was negligible. With the quick rise of the federal funds interest rate, investors can experience better returns by transferring the extra cash sitting in savings accounts to a money market fund in their brokerage accounts.
Early in May 2023, The Federal Reserve announced its tenth consecutive federal funds rate hike since March 2022. While you may have heard about its impact on banks like Silicon Valley Bank and Signature Bank, the historic rate hike also created certain opportunities for investors. One such opportunity is in brokerage money markets. The seven-day yield for a Fidelity money market fund was 4.74% as of 5/12/2023 (https://fundresearch.fidelity.com). By comparison, the average savings account interest rate was 0.36% as of 5/12/2023 (https://fortune.com/recommends/banking/average-savings-account-interest). Many investors are taking advantage of the rising rates by transferring cash from a savings account to a brokerage account money market fund. A money market fund is a kind of mutual fund that invests in highly liquid, near term investments such as cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short maturity like U.S. Treasuries. A Fidelity money market fund features daily liquidity, no minimum deposit, no transaction fees, and is insured by the Securities Investor Protection Corporation (SIPC). SIPC covers up to $500,000 of securities per brokerage account, and Fidelity has an excess of SIPC coverage for up to $1 billion.
Many investors are moving cash from their savings accounts to their individual or joint investment accounts to take advantage of the higher interest rates in the investment accounts’ money market fund. We’ve also seen business owners move funds from the corporate bank account to a corporate investment account to receive the same benefit with their company’s operating cash. Fidelity offers check-writing and debit card services on joint, individual, and corporate investment accounts to make it as easy as possible for clients to access their money market funds. Interest rates have not been this high since 2007, and rates could decline relatively soon. Please contact your Abbey Street advisor if you have any questions about how to take full advantage of money market funds in the current interest rate environment.
Fidelity Fund Search: https://fundresearch.fidelity.com/