Money Market Funds Attracted $935B Last Year. Expect Half That in 2026

Core Insights - Money market funds attracted $935 billion in new assets in the previous year, exceeding expectations and demonstrating resilience against anticipated outflows due to Federal Reserve rate cuts [1] - Continued growth in money market funds is projected, with an additional $500 billion in inflows expected by the end of 2026, pushing total assets beyond $8.6 trillion [1] Market Trends - Money market funds are expected to remain essential for financial advisors, even if interest rates decline, serving various purposes such as emergency reserves and volatility buffers [2] - The popularity of money market funds surged as the Federal Reserve began raising rates in 2022, peaking in mid-2023 with rates between 5.25% and 5.5% [3] - Current federal funds rates are between 3.5% and 3.75%, maintaining the attractiveness of money market funds for yield-seeking investors [3] Yield Comparisons - As of the latest data, the 7-day yields for the Vanguard Federal Money Market Fund and the Fidelity Government Money Market Fund were 3.69% and 3.43%, respectively, while the Crane 100 Money Fund Index stood at 3.58% [3] - Yields on money market funds remain competitive compared to traditional bank deposit products, which are less attractive [4] Investor Composition - Retail investors accounted for 34% of total money market inflows, while institutional investors represented 64% [5] - Money market fund yields have exceeded 3% only twice in the last two decades, with a significant portion of that time yielding effectively zero due to the Federal Reserve's lower bound rates [5]