Why wealthy customers are the 'most worrisome' for banks right now
Money-market fund assets reach new all-time high as interest rates attract investors, posing challenges for struggling banks that have seen deposit outflows.
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Posted 9/3/2023, 12:30:44 PM
yahoo.com
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Money market mutual funds are offering the highest interest rates in decades, attracting investors looking for higher yields with lower risk. The average interest rate of 5.15% is the highest since 1999, making money market funds a compelling option for preserving purchasing power amid rising inflation.
The SEC's 2023 reforms for the U.S. money market fund industry eliminate the link between weekly liquid assets and the option to impose fees and redemption gates, introducing mandatory "dynamic" liquidity fees based on same-day net outflows instead.
Investors should take advantage of the high yields offered by money market funds (MMF) due to the inverted yield curve and the current market conditions, which may provide a safe and reliable source of income in the near future.
High-yield savings accounts and money market accounts are similar in many ways, but the minimum deposit requirement and accessibility make them different, with money market accounts offering more flexibility and easier access to funds.
Fund manager Kimberly Scott believes that elevated interest rates are presenting a significant challenge for equity investing and the economy, but she still sees value in mid-cap growth stocks and has identified six companies that she finds attractive in the current market conditions, including The Trade Desk, MSCI, Microchip Technology, Trex, and Pinterest.
Global money market funds saw strong inflows as investors sought safer options amid concerns over slowing growth in China and Europe and uncertainty regarding the Federal Reserve's interest rate outlook.
Investors now have the opportunity to earn high interest rates on their cash deposits, with some potentially earning as much as 5% or more, marking the highest rates in 15 years, prompting financial advisors to urge savers to shop around for the best rates and avoid holding too much cash.
Investors are flocking to money market funds as a safe alternative to buying stocks or bonds, with the record high net assets of these funds potentially fueling a year-end stock market rally, according to Bank of America.
US banks are experiencing significant deposit outflows, with total bank deposits plunging by over $70 billion in a week, the lowest levels since May, leading to concerns about the ongoing regional banking crisis; meanwhile, US commercial banks have also suffered significant losses in deposits, with 60% of deposits moving to higher-yielding money market funds, and the balance of unrealized losses on securities at commercial banks rising to $558 billion in Q2; to address these issues, the Federal Reserve has reached an all-time high of $107.8 billion in its banking loan facility to provide funding to distressed banks.
Investors are expected to gravitate towards funds focused on innovative themes as the Federal Reserve cuts interest rates, according to Cathie Wood, founder of ARK Investment Management.