With yields at around 5%, money market funds have been attracting investors in droves. Yet not all funds are the same. Government funds account for about 80% of the market, while about 20% are prime funds, according to Crane Data, a firm that tracks money markets. Prime funds hold primarily corporate debt securities. Since corporate debt is considered riskier than taxable government debt, investors are rewarded with a higher yield. Right now prime funds yield an average 5.
During the zero-rate environment, money market fund investors stuck largely with government funds over prime funds since there wasn't a big spread between the two, Federated Hermes' Cunningham said. Interest in prime funds ticked up late last year and during the regional bank crisis this year, she said. Money appeared to be largely moving from bank savings accounts as investors discovered the higher yields and the spreads widened between government and prime funds, she explained.