After a decade of persistently low and even negative interest rates, money market mutual fund rates have now risen and offer very attractive yields, making them a great alternative to riskier assets and a safe place to park cash.
Generally, people with extra cash will save the cash in a bank until they decide what to do. While there is nothing wrong with that, you will be missing an opportunity now interest rates are high.
Money market mutual funds (MMMFs) are a type of mutual fund that invests in highly liquid, short-term instruments that are traded daily offering you similar security and accessibility as cash.
One of the most appealing aspects of MMMFs is in times of high interest rates. If interest rates go up as they currently are the returns on money market assets also increase. This happens because when short-term interest rates rise, it boosts the yield and performance of money market funds. Currently, the U.S. interest rate is 5.50%, the U.K. rate is 5.25%, and Europe's rate is 4.50%. This means that current money market mutual fund rates are also high, offering you the potential for higher returns.
Below is the table showing some MMMFs Astra uses, and you will notice that the yields have been consistently increasing from August 2023 to September 2023. What is especially interesting for the USD MMMFs is that their current yields are higher than the latest U.S. inflation rate of 3.70%. For other currencies, the yields are also close to their respective inflation rates. This means your money is not losing value; it is growing and outpacing inflation with ‘no risk’; we believe this trend will continue for some time.
Table 1.1 MMMFs Astra Offers Across 3 Different Currencies
Source: FE Analytics and Fund Factsheets
How will Money Market Mutual Funds perform in the years ahead?
The yield of MMMF is based on the prevailing interest rates, and experts say that interest rates will stay at a higher level for a long time; they call it “Higher for Longer.”
In the United States, the Federal Reserve emphasizes the importance of combating inflation, potentially leading to continued high-interest rates. Experts anticipate that the U.S. interest rate will likely remain higher for the rest of 2023, with a possibility of one increase to 5.75%.
In the U.K., many economists expect that interest rates will peak at approximately 5.50% and then gradually decrease to about 4.75% by the end of 2024 and further to 4.25% by the summer of 2025. In Europe, there is an expectation of one more interest rate increase to 4.75% by the end of this year, with the possibility of two or three rate cuts in the following year, bringing rates down to around 3.00%.
The good news for clients is that Money Market Mutual Funds (MMMFs) will continue to offer higher yields for an extended period, giving you increased returns in the short to medium term with minimal risk.
Other reasons why we are recommending Money Market Mutual Funds right now.
· Easy Access: MMMFs are traded every day, making them a highly liquid investment. You can buy and sell it at any time.
· Not Volatile: They don't jump up and down in value like some investments. They stay stable and slowly grow in line with interest rates.
· Better Than Banks: MMMFs can earn you more money compared to regular bank accounts. MMMFs invest in diversified low-risk assets, offering greater safety compared to placing all your cash in a single bank.
Do Money Market Mutual Funds offer a level of safety comparable to that of a bank savings account?
Yes, Money Market Mutual Funds can be considered as secure as keeping your cash in a savings account.
Savings accounts in certain countries offer deposit insurance. However, this insurance is subject to certain limitations. Let’s look at the chart below showing deposit insurance per country:
Table 1.2 Deposit Insurance Per Country
Sources: Financial Services Compensation Scheme (UK), Isle of Man Financial Services Authority, Guernsey Financial Services Corporation, Government of Jersey, European Commission, Lexology (Banking Regulation in UAE), Central Bank of Bahrain, Philippine Deposit Insurance Corporation, Federal Deposit Insurance Corporation (U.S.).
The table above highlights the risk of bank accounts in various countries and shows the maximum you would receive if your bank failed.
Having diverse exposure to safe short-term assets gives MMMFs a similar or better level of protection that closely resembles the safety of savings accounts. In essence, MMMFs can be considered as secure as keeping your cash in a savings account.
Choosing to invest in Money Market Mutual Funds (MMMFs) is a smart decision for individuals seeking to safeguard their capital while earning a steady, low risk return. MMMFs serve as a valuable addition to any investment portfolio due to their safety, liquidity, and diversification, especially during times of relatively high interest rates.
Are you sick of letting the bank make money on your cash? Explore the potential of Money Market Mutual Funds (MMMFs) today and start putting your money to work for you. With attractive yields and stability, MMMFs offer a smart alternative to traditional savings.
Don't miss out on this opportunity for higher returns and capital protection. Contact Astra now to begin your journey towards a more financially secure future!