No matter which brokerage platform investors use, whether Vanguard, Fidelity or Charles Schwab, the same question eventually comes up: What should be done with excess cash?
Many investors maintain a cash wedge as a last-resort safety buffer, either to rebalance into stocks during a market decline or to cover unexpected expenses without selling long-term investments at the wrong time. The drawback is that idle cash quietly loses purchasing power to inflation.
That’s why many financial professionals recommend keeping excess cash in a cash-equivalent vehicle. At Schwab, investors have several options, each with trade-offs.
According to Schwab, some of the highest available yields currently come from certificates of deposit (CDs), with rates around 4% APY. CDs are guaranteed by the Federal Deposit Insurance Corporation and allow investors to lock in a stated interest rate for a set term, which can be useful if the Federal Reserve later cuts rates. The trade-off is reduced flexibility. Investors who redeem a CD before maturity may face penalties that can include forfeiting some or all accrued interest.
More flexible options include the Schwab Bank Investor Savings account and the cash sweep feature inside a Schwab brokerage account. These allow investors to access cash without a maturity date or lockup period. The Schwab Bank Investor Savings account is FDIC-insured, while brokerage sweep cash has different protections, but the main drawback is that yields are typically much lower.
A middle ground may be Schwab money market mutual funds. According to Schwab, these funds currently offer yields ranging from about 1.6% to 3.6%. They are not FDIC-insured and principal is not guaranteed, but they are designed to maintain a stable $1 net asset value (NAV) per share and invest in high-quality, ultra-short-term securities. Depending on whether the fund is prime, government or municipal, the exact holdings and tax treatment can vary.
At Schwab, the standard money market fund share classes charge a 0.34% net expense ratio and have no minimum investment requirement. Investors with larger balances can access Ultra Shares, which lower the expense ratio to 0.19% and can improve yield, but those institutional share classes typically require a $1 million minimum investment.
Here are five of the best Schwab money market funds to consider:
| Fund | 7-day SEC yield |
| Schwab Prime Advantage Money Fund (ticker: SWVXX) | 3.5% |
| Schwab Government Money Fund (SNVXX) | 3.4% |
| Schwab U.S. Treasury Money Fund (SNSXX) | 3.4% |
| Schwab Municipal Money Fund (SWTXX) | 1.6% |
| Schwab Government Money Market ETF (SGVT) | 3.4% |
Schwab Prime Advantage Money Fund (SWVXX)
SWVXX is Schwab’s flagship prime money market fund, designed to maximize yield while maintaining liquidity and stability. It invests in a diversified portfolio of CDs, U.S. Treasurys, commercial paper, repurchase agreements and bankers’ acceptances. SWVXX currently manages more than $247 billion and has strong daily liquidity at 42% of its assets, meaning it can easily meet shareholder redemptions.
After deducting its 0.34% expense ratio, SWVXX currently pays a 3.5% seven-day SEC yield, near the lower end of the Fed’s 3.5% to 3.75% target range. Because its underlying holdings mature quickly, the fund’s yield typically moves in close step with interest rate hikes and cuts. With the Fed recently holding rates steady, investors can get paid a higher yield for longer.
Schwab Government Money Fund (SNVXX)
“While all money market funds are generally considered low-risk, government money market funds are viewed as the most conservative option,” says Michael Ashley Schulman, partner at Cerity Partners. “These funds must keep at least 99.5% of their assets in government securities or related repurchase agreements.” The trade-off versus prime funds like SWVXX is a slightly lower yield.
Repurchase agreements are short-term loans collateralized by high-quality securities, while agency debt is issued by U.S. government-sponsored entities. These securities generally carry very low credit risk and help government money market funds like SNVXX maintain their conservative profile. After deducting the standard 0.34% expense ratio, SNVXX currently pays a 3.4% seven-day SEC yield.
Schwab U.S. Treasury Money Fund (SNSXX)
While repurchase agreements and agency debt carry very low risk, they still introduce some exposure to counterparties or government-sponsored entities that Treasurys, backed by the full faith and credit of the U.S. government, do not have. Accordingly, some government money market funds like SNSXX invest exclusively in U.S. Treasury securities. SNSXX currently pays a 3.4% seven-day SEC yield.
“For our multifamily office clients, we want a money market fund that is as safe as possible from disruption from pandemics, wars, strikes and other global macro events,” Schulman says. “In these cases, we often look to Treasury money market funds, which are considered flight-to-safety instruments and don’t have the spread-widening risk of corporate or foreign instruments.”
Schwab Municipal Money Fund (SWTXX)
The tax treatment of money market funds depends on what they own. Prime funds generally distribute income taxable at both the federal and state levels, while Treasury-only funds are typically exempt from state and local taxes. Investors in higher tax brackets may instead prefer a municipal money market fund such as SWTXX, which pays a 1.6% seven-day SEC yield that is exempt from federal income tax.
“If tax efficiency is your primary focus, consider investing in a municipal money market fund, where most earnings are typically free from federal taxes,” Schulman says. “These funds generally invest in debt securities from local and state entities, like city hospitals, state colleges, power companies and transit systems, so in addition to receiving tax-advantaged income, you will be doing a social good.”
Schwab Government Money Market ETF (SGVT)
Money market funds are now available in exchange-traded fund (ETF) form. While they no longer maintain a fixed $1 net asset value, in practice their share price typically hovers around $100, gradually rising as interest accrues before dropping by the payout amount on the monthly ex-dividend date. They remain subject to similar regulatory requirements as money market mutual funds.
SGVT is Schwab’s only money market ETF and follows the government money market model by investing in U.S. Treasury bills and other U.S. government obligations. The fund charges a lower 0.28% expense ratio and currently pays a 3.4% seven-day SEC yield. Investors can buy and sell shares of SGVT throughout the day, unlike money market mutual funds that are traded only at market close.