It's been a long while since we've written about cash options in a brokerage account. With interest rates near record lows, there wasn't much to write about! Every option was unattractive.

But with rates rising, the picture is starting to change — if only slightly thus far.

SMI's Stock Fund Upgrading strategy currently has three positions "in cash," one in each of our three Upgrading risk categories. Our suggestion has been to hold that cash in your brokerage sweep account, but with rates starting to move up, you may want to consider other options. After all, some brokerage sweep accounts are still paying 0.01% (that works out to $1 a year on a $10,000 investment!).

Moving on up

In the past, we have recommended holding uninvested cash in a money market fund (MMF). As rates finally get up off the floor, that recommendation is starting to make sense again. As of last Thursday (5/19), Crane Data reported that the average "7-day-yield" on the 100 largest taxable money market funds (MMFs) stood at 0.53%.

In February, that average was just 0.02%, the exact bottom-of-the-barrel spot where it had remained for two years!

Looking specifically at "retail" funds (as opposed to funds geared to the "institutional" market), Crane reported that "Treasury Retail MFs currently yield 0.​22% (​up...16 bps [basis points] in May), Government Retail MFs yield 0.​21% (​up...17 bps in May), and Prime Retail MFs yield 0.​42% (​up...28 bps for May)."

The MMF landscape

If you're not familiar with money market funds, an MMF is a type of mutual fund (don't confuse money market funds with bank-offered money market accounts). This kind of mutual fund invests in short-term debts from governments, banks, and corporations. summarizes the four types of MMFs:

  • Treasury Funds: These funds invest in Treasury bills, bonds and notes that are frequently traded.
  • Prime Funds (also called General Purpose Funds): They invest in non-Treasury securities like floating-rate debt and commercial paper of U.S. government agencies, corporations and government-sponsored entities.
  • Government Funds: Government funds invest 99.5% of their assets in cash, Treasury securities and repurchase agreements. All investments have to be collateralized by cash and cash equivalents like U.S. government securities.
  • Tax-exempt Funds: These funds invest in municipal bonds and other securities which are free from federal income taxes and often state taxes. These funds have a lower return than other money market funds due to their tax-exempt status.

Fewer options 

In an environment of super-low rates, MMFs aren't enticing to investors or all that profitable for fund companies, so it's not surprising the number of MMFs available to retail investors is fewer today than a few years ago. In addition, government rules imposed after the 2008-2009 financial crisis have increased regulatory pressure on the MMF business.

The upshot is that some money market funds have been discontinued, such as the long-reliable Vanguard Prime, a fund we recommended for many years. At the same time, and for various reasons, some brokers have sharply reduced the number of MMFs available via their platforms. TD Ameritrade, for example, used to offer hundreds of money market funds from various companies. Now, it offers only a relative handful of Schwab-branded MMFs (Schwab now owns TDA).

According to the Investment Company Institute, more than 600 MMFs were in operation in 2011. By 2021, the number had declined to about 300 (PDF). 

Best performers at SMI-recommended brokers

All of SMI's recommended brokers still offer at least a few money market funds. E-Trade has the most no-transaction-free MMFs available for retail investors (more than 60), while Vanguard has the least (although Vanguard has strong performers).

Here's a quick overview of each broker's top-yielding taxable money funds, plus links for where to learn more.

Fidelity Money Market Fund Prime Money Market SPRXX 0.50%
Fidelity Government Cash Reserves Money Market–Taxable FDRXX 0.43%
Fidelity Government MMF Money Market–Taxable SPAXX 0.35%
Fidelity Treasury MMF Money Market–Taxable FZFXX 0.35%
Fidelity Treasury Only MMF Money Market–Taxable FDLXX 0.29%
*As of 5/22/22.

If you're a Fidelity customer, you'll want to know that Fidelity offers FDRXX and SPAXX (both are in the table above) as default options for "sweep" money — i.e., Fidelity's "core position." FZFXX (also listed above) can be used as the core position except in retirement accounts.

Fidelity's entire list of money market funds is here.

Schwab Val Adv Money Fund – Inv Shares Prime Money Market SWVXX 0.58%
Schwab Govt Money Fund – Inv Shares Money Market–Taxable SNVXX 0.43%
Schwab Treas Obl Money Fund – Inv Shares Money Market–Taxable SNOXX 0.42%
*As of 5/20/22.

Unfortunately, Schwab doesn't allow any of the MMFs listed above to be used as default options for sweep money. Instead, Schwab offers three "Cash Features" accounts for sweep money: 1) the "Bank Sweep" that deposits money in interest-bearing deposit accounts (with Schwab-affiliated banks); 2) The "Schwab One Interest" account; and 3) the "Money Fund Sweep" account which puts money into the Schwab Sweep Money Fund (this option isn't available to most customers).

So, if you want to use a Schwab money market fund and you're not eligible for option #3, you'll have to deploy your uninvested cash from one of the default options into a Schwab MMF. You can see all of Schwab's MMF offerings here.

Federated Hermes Prime Cash Obl – Wealth Prime Money Market PCOXX 0.76%
Vanguard Federal Money Market** Money Market–Taxable VMFXX 0.67%
Vanguard Cash Res Fed Money Mkt – Adm** Money Market–Taxable VMRXX 0.65%
Vanguard Treasury Money Market** Money Market–Taxable VUSXX 0.57%
Invesco Premier US Govt Money*** Money Market–Taxable FUGXX 0.53%
*As of 5/20/22. **$3,000 minimum initial investment. ***$1,000 minimum initial investment.

Unlike the other brokers, E-Trade has MMFs from multiple companies. You see research all of E-Trade's MMF offerings here (use the "Fund Category" option in the left column and choose "Money Market.") 

E-Trade does offer an MMF as one of its default sweep options: JP Morgan Liquid Assets Money Market (OPCXX). But that fund currently is yielding a scant 0.06%.

Vanguard Federal Money Market** Money Market–Taxable VMFXX 0.67%
Cash Reserves Fed Money Mkt–Adm** Money Market–Taxable VMRXX 0.65%
Vanguard Treasury Money Market** Money Market–Taxable VUSXX 0.57%
*As of 5/20/22. **$3,000 minimum initial investment.

Vanguard investors have a sweet arrangement — VMFXX (the top-yielding MMF in the table) also serves as the default "settlement fund" for Vanguard account holders.

You can see all of Vanguard's MMFs here.

The SHY option

Another option for parking uninvested cash is the exchange-traded fund SHY, the "cash" option used in SMI's Dynamic Asset Allocation strategy. Strictly speaking, SHY is not a "cash" holding, as Mark explained in a 2018 post.

SHY is the ticker symbol for the iShares 1-3 Year Treasury Bond ETF....  [Money market funds] are savings instruments with predictable, positive returns every month. SHY is a short-term bond fund whose returns go up and down on a daily and monthly basis. And in the short term, those returns can reflect the direction of interest rate changes as much or more so than the absolute level of interest rates themselves.

That explains why SHY struggled as the Fed's rate hikes began. Now, with shorter-term rates having pulled back — three weeks ago, the 2-Year Treasury rate hit 2.73%; today, it stands at 2.60% — SHY's performance is improving. The fund posted a slight loss in April (–0.50%), but thus far in May, SHY is up +0.45% (through 5/20). 


Although genuinely attractive options for shorter-term cash holdings remain elusive, money market funds are rebounding and SHY appears to be turning a corner.

If you prefer to keep your uninvested cash in your broker's sweep account, that's fine — especially at Fidelity and Vanguard, where MMF sweeps are available. But if your broker is still paying only 0.01% or 0.02% on uninvested cash, you may want to consider an MMF or SHY.