Money Market Fund Yields Approach 5%

If cash is king, its empire is getting a little tarnished.

The average seven-day yield on taxable money market funds continues to fall toward 5%, a level that hasn’t been seen in more than a year, the Money Fund Report newsletter said Wednesday.

Yields averaged 5.04%, or 5.17% compounded, in the week ended Tuesday, according to the newsletter published by IMoneyNet Inc. of Westborough, Mass. Thirty-day money fund yields, meanwhile, averaged 5.17%, or 5.29% compounded.

If seven-day yields fall below the 5% mark, investors “might stop and take a look,” said Connie Bugbee, editor of Money Fund Report. “But bank products are paying less, and if you’re not going back into the equity markets, where else are you going? Money funds still are an excellent parking place.”

The seven-day fund yield peaked at 6.02%, or 6.20% compounded, the week ended Dec. 5, the highest level in almost 10 years. But yields have fallen this year in the wake of two interest rate cuts by the Federal Reserve.

Money yields will probably stabilize at about 5%, Bugbee said, unless the Fed cuts rates later this month, which would probably send yields below 5%.

Money funds held a near-record $2.03 trillion in the week ended Feb. 28, according to the Investment Company Institute.