When Money Funds Paying 5% Don't Make Sense

Amid stock and bond market turmoil, wars in the Middle East and Ukraine, and elevated inflation, investors have been flocking to money market funds, which have been yielding 5%.

So far this year, retail investors have put $960.2 billion into money funds, compared to $225.7 billion into equity exchange-traded funds and $164.6 billion into fixed income ETFs, CNBC reports, citing Strategas data.

Among the largest taxable retail money market funds, one of the highest-paying is the Federated Hermes Prime Cash Obligation fund , paying 5.42%. There’s also the Fidelity Investments Money Market fund , yielding 5.37%, and the Schwab Value Advantage Mutual Fund Ultra fund , delivering a return of 5.39%.“The yields are really ephemeral,” says Christine Benz, director of personal finance and retirement planning at Morningstar. “You are not locking anything in.

However, money funds can be redeemed at any time and are highly liquid, whereas a CD must be locked in for a minimum of six months without paying a penalty before its maturity. As for Treasury bonds, interest rates are eventually going to come down, and with them, bond yields, says Barry Glassman, president of Glassman Wealth Services.

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