Savers savor Fed policy
The Federal Reserve’s stay-the-course plan for short-term interest rates will let many savers breathe easy: The yields they’re earning on money market funds and other short-term accounts are likely to hold near current levels, which are close to six-year highs.
“I think interest rate stability is here to stay for a while,” said Greg McBride, an analyst at Bankrate.com in New York.
The average seven-day annualized yield on money market mutual funds was 4.71% as of Tuesday, according to iMoneyNet in Westborough, Mass. That yield has drifted down just slightly from its recent peak of 4.76% in March, which was the highest since 2001, the firm said. A year earlier, the average fund yield was 4.26%.
Annualized yields on six-month bank savings certificates now average 3.85% nationwide, according to Informa Research Services in Calabasas. That average has stayed the same for the last month and is up from 3.35% a year earlier.
Yields on money funds and short-term bank accounts tend to closely track changes in the Fed’s benchmark rate, which the central bank has held at 5.25% since June. Until the Fed starts leaning toward cutting that rate, savings yields will probably hold their ground, analysts say.
Savers who shop around can find annualized yields of more than 5% on some money market funds as well as on six-month bank certificates, McBride of Bankrate.com said.
Although the stock market this year has posted better than a 5% annual return -- the Standard & Poor’s 500 index already is up 6.6% year to date -- there’s always plenty of risk of loss in stocks. Money market funds and bank accounts, by contrast, pose virtually no risk of principal loss.
Many investors must be thinking that 5% or so is a fine return, at least for a portion of their portfolio: Money funds have taken in a net $99 billion in new cash this year, up from $17 billion in the same period of last year, iMoneyNet said.
Money fund assets total $2.42 trillion.