Savers: Whee!

If the Federal Reserve nudges short-term interest rates higher today, long-suffering savers can start to earn a little money on their hard-earned cash, right?

Federal Reserve Building, Washington DC, USA
Federal Reserve Building, Washington DC, USA

Ha! Ha! Not much. Most money market mutual funds are absorbing expenses, which is a polite way to say “losing money every day.” Think of it this way: If it costs, say, 0.35% to run your fund and you’re earning 0.15% a year in interest, you’re losing money. Most fund companies are chipping in the difference between their money funds’ income and outgo.

And they’re not doing that because they are swell people who just want everyone to be happy. They’re absorbing expenses because if they didn’t, the funds’ share prices would fall below $1 per share, which is the money-fund equivalent of picking your toes at the table at a state dinner. “Asset managers will be celebrating more than investors after this first rate hike,” says Peter Crane, publisher of Crane Money Fund Intelligence.

And it’s not like the Fed is likely to be boosting rates to the good old days. A 0.25% hike in the fed funds rate might result in an increase in money market fund yields to 0.10% to 0.15%, Crane says. On the positive side, that’s a 400% jump in yield. On the negative side, it will take you 7,200 years to double your money at 0.10%.

What about short-term bank deposits, such as money market accounts and CDs? Those rates depend largely on how much banks need deposits, and most banks don’t particularly need them at the moment. You can, however, get some decent yields (for these times) from a few select banks on money market accounts. Synchrony Bank, once a division of GE Capital, currently offers the highest-yielding money market account, with the princely yield of 1.05%, according to Bankrate.com.

 

 

 

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