Money Market Mutual Fund Rates – Why Are They So Low?
One of the biggest questions that many investors have is why are money market mutual fund rates so low right now? This is not just a current problem, the rates have been extremely low since the 2008 economic problems, and even the best performing mutual funds are not seeing much of a return on their investment. Determining why the money market mutual fund rates are so low and have been that way for some time is important, so that steps can be taken to resolve this problem if possible. The cause of this issue goes directly to the federal fund rate, which is determined by the Federal Reserve.
Both load and no load mutual funds are affected by the federal fund rate, and this rate has been set at a very low amount since 2008 with the hopes that this measure will jump start or improve the economy. The federal fund rate affects short term interest rates, which also ties in to the money market mutual fund rates. As long as the short term interest rates do not increase then neither will the rates investors see for these funds. Market timing mutual funds has also been affected by the low rates, and many investors have started to look elsewhere because of the performance mutual funds in general have seen in the last few years.
The good news concerning the money market mutual fund rates is that some experts predict an increase in the federal fund rate and short term interest rates sometime this year. Until this happens though some investors have chosen to go with savings bonds or CDs for a risk free investment instead, which can offer comparable interest rates for the capital in some cases. The current low money market mutual fund rates has caused a drop in the amount invested in these funds, and caused many investors to pull some or all of their money for other investments which offer a better return.