MMFs & CDs: Americans Pile On Low-Risk Investments Despite So-So Yields, Higher Inflation

By America Pulse · Based on reporting from seekingalpha.com

Households are continuing to load up on money‑market funds and certificates of deposit even though the after‑fee yields on those vehicles have slipped below 3.75%, a level far lower than the more than 5% rates seen in the first half of 2024.

Growing Balances despite Lower Yields

The Federal Reserve’s recent rate moves have not stopped investors from adding cash to short‑term, low‑risk products. In the second quarter, families increased their money‑market fund holdings by $579 billion compared with a year earlier, pushing total balances to $5.1 trillion. That surge occurred while the average net yield on these funds fell beneath the 3.75% mark after fees.

Expected Yield Recovery

Analyst Wolf Richter of Wolf Street points to the current Treasury‑bill market as a catalyst for an upcoming rise in money‑market returns. He explains that yields on the funds are likely to climb in the next few weeks to mirror the prevailing T‑bill rates, which sit between 4.04% and 4.20%. This adjustment, however, hinges on the Federal Reserve delivering another interest‑rate hike.

Real‑term Returns under Pressure

Even with a potential uptick, the nominal yields on money‑market funds and comparable certificates of deposit remain modest when measured against inflation. Price growth continues to match or exceed the earnings from these instruments, meaning investors effectively face zero or negative real returns and see their purchasing power eroded over time.

WHY Investors Favor Safety

The persistent flow of capital into these low‑risk products suggests that many Americans prioritize liquidity and capital preservation over higher yields. In an environment of uncertain economic outlook and volatile equity markets, the appeal of a stable, easily accessible investment appears to outweigh the drawback of modest returns.

Looking Ahead

If the Federal Reserve proceeds with an additional rate increase, short‑term yields should edge higher, offering a modest improvement for money‑market fund participants. Nonetheless, analysts caution that inflation trends will continue to dictate the real value of those gains. Investors will need to monitor both monetary‑policy decisions and price‑level movements to gauge whether the trade‑off between safety and return remains worthwhile.

Source: seekingalpha.com · 2026-09-15