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I see some of the money market Funds are yielding higher than the online-banks
Schwab Value Advantage Money Fund® Investor Shares (SWVXX) is yielding 4.47%
FIDELITY GOVERNMENT MONEY MARKET ( SPAXX ) is yielding 3.96%
Fidelity® Treasury Money Market Fund (FZFXX ) is yielding 3.96%
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 ?
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.
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.
