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I see some of the money market Funds are yielding higher than the online-banks

  1. Schwab Value Advantage Money Fund® Investor Shares (SWVXX) is yielding 4.47% swvxx

  2. FIDELITY GOVERNMENT MONEY MARKET ( SPAXX ) is yielding 3.96% SPAXX

  3. Fidelity® Treasury Money Market Fund (FZFXX ) is yielding 3.96% FZFXX

So my question is how these Money market fund are able to give such higher rate while none of the internet banks could match that and what could be the cons of putting money in these Money Market Funds ?

2 Answers 2

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Cut the middle man and invest in the money market yourself. What do you think banks are going to do with your short term deposit funds? The exact same thing, just take more than the 0.34% expense ratio that the Schwab fund has because why not?

In reality, the banks have much higher overhead than funds. They need to maintain branches, websites, personnel, provide customer support, deal with other activities, etc.

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  • Money market accounts predate money market mutual funds, I believe...? (Though that might just be my awareness of them.)
    – keshlam
    Commented Feb 15, 2023 at 16:43
  • @keshlam and...?
    – littleadv
    Commented Feb 15, 2023 at 17:37
  • Just observation that the latter are effectively a discounted version of the former, rather than the former being a surcharge on the latter.
    – keshlam
    Commented Feb 15, 2023 at 19:37
  • @littleadv actually I was looking to find what are the pros of online banking if brokerage money market funds are offering better rates.
    – puzzled
    Commented Feb 17, 2023 at 4:34
  • @puzzled FDIC insurance
    – littleadv
    Commented Feb 17, 2023 at 5:19
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With terms like 'Government' and 'Treasury' those funds mostly hold US Treasury products.

A quick check of Treasury Direct recent auctions on Feb 15, 2023 shows:

T-Bill Issue Date Investment Rate (coupon yield)
13-Week 2/16/2023 4.802%
26-Week 2/16/2023 5.030%
4-Week 2/14/2023 4.599%
8-Week 2/14/2023 4.698%

Which shows what those funds themselves (approximately) would be getting in the Treasury market. The difference between what the US Treasury is offering and funds are offering involves convenience by not restricting you to the purchase/sale time requirement and of course their overhead for providing such service.

If you have the patience you can buy directly via Treasury Direct subject to their limitations, i.e. T-Bill purchases (retail non-auction) are typically on a once per week schedule, can't sell until term, etc.

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  • thanks TreasuryDirect does not provide joint accounts and also does not have nomination feature
    – puzzled
    Commented Feb 17, 2023 at 4:32
  • I was looking to find what are the pros of online banking if brokerage money market funds are offering better rates
    – puzzled
    Commented Feb 17, 2023 at 4:33

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