Best Money Market Funds for Safety and Yield in 2025

 

Money Market Funds

In 2025, money market funds (MMFs) are having a moment. After years of near-zero returns, these once-overlooked investment vehicles are now delivering impressive yields with minimal risk making them a top destination for conservative investors, retirees, and even institutions managing short-term cash. With 7-day SEC yields ranging from 4.6% to over 5.1%, and a renewed emphasis on capital preservation, money market funds have re-emerged as a compelling cash alternative. But not all MMFs are created equal. Fees, composition, tax treatment, and liquidity features vary widely, and choosing the right fund in 2025 can make a real difference in both safety and net return.

So, what exactly is a money market fund? At its core, a money market fund is a mutual fund that invests in high-quality, short-term debt instruments. These can include U.S. Treasury bills, repurchase agreements (repos), certificates of deposit, commercial paper, and agency securities. They’re regulated under SEC Rule 2a-7, which imposes strict maturity and credit quality requirements to help maintain price stability. Most money market funds aim to maintain a stable Net Asset Value (NAV) of $1.00 per share, although institutional prime funds may allow NAV to fluctuate slightly.

There are three primary types of MMFs to consider in 2025:

1. Government Money Market Funds – Invest primarily in U.S. Treasury and agency securities. These are considered the safest category and are often used by risk-averse investors. Examples include:

   • Vanguard Federal Money Market Fund (VMFXX)

     • 7-day SEC yield: ~5.08%

     • Expense ratio: 0.11%

     • Minimum investment: $3,000

   • Fidelity Government Money Market Fund (SPAXX)

     • 7-day SEC yield: ~4.95%

     • Expense ratio: 0.42%

     • Used as a default sweep account for Fidelity brokerage accounts

2. Treasury-Only Money Market Funds – Invest exclusively in U.S. Treasury securities. Slightly more conservative than government funds, they offer state and local tax exemptions on interest income. Examples:

   • Schwab Treasury Obligations Money Fund (SNOXX)

     • 7-day SEC yield: ~5.01%

     • Expense ratio: 0.34%

     • Very high credit quality; daily liquidity

   • Fidelity Treasury Only Money Market Fund (FDLXX)

     • 7-day SEC yield: ~4.98%

     • State tax-exempt; ideal for high-income earners in states like California and New York

3. Prime Money Market Funds – Invest in a broader range of short-term instruments including commercial paper and bank debt. These may offer slightly higher yields but carry more credit risk and are less popular for risk-averse investors.

   • Vanguard Prime Money Market Fund (VMMXX)

     • 7-day SEC yield: ~5.12%

     • Expense ratio: 0.16%

     • NAV may fluctuate slightly; not ideal for ultra-conservative cash parking

One of the main reasons MMFs are attractive in 2025 is their combination of safety, yield, and liquidity. Unlike CDs, which require locking in funds for a set period, MMFs allow investors to access their money at any time usually by the next business day. Unlike HYSA rates, which are subject to bank discretion and can be reduced without notice, MMF yields float transparently with short-term interest rates and adjust automatically.

Another key benefit is tax efficiency. Treasury-only MMFs, in particular, offer exemption from state and local income taxes, making them an attractive option for high-income earners in states with high tax burdens. For example, a California resident in the 9.3% state bracket could effectively improve their after-tax yield by choosing a Treasury MMF over a bank savings product with identical gross yield.

Fees are critical when evaluating MMFs. A fund offering a 5.0% gross yield with a 0.50% expense ratio will underperform a similar fund yielding 4.9% with a 0.10% fee. Low-cost providers like Vanguard and Fidelity tend to dominate this space, and investors should pay close attention to both yield and expenses. Look for funds with net yields above 4.8% and fees under 0.25% for optimal performance in 2025.

So where do MMFs fit in a portfolio? In 2025, they’re being used in a variety of ways:

• Emergency Funds – Savers are moving cash from low-yield bank accounts into government MMFs for better returns without sacrificing access.

• Rollover Cash – Retirees using RMDs or cash distributions are keeping idle funds in MMFs while waiting to deploy.

• Brokerage Sweeps – Investors are customizing default cash sweep options to include higher-yielding government MMFs.

• Cash Buckets in Retirement – As part of a bucket strategy, MMFs are being used to fund near-term income needs while riskier assets remain invested.

Accessibility is another reason for their rising popularity. MMFs are now widely available through major brokerages like Schwab, Fidelity, and Vanguard, as well as robo-advisor platforms like Betterment and Wealthfront. In many cases, you can auto-sweep dividends, interest, or capital gains directly into your MMF of choice, creating a frictionless cash-management experience.

However, MMFs are not without risks. While they are extremely low risk, they are not FDIC-insured. During extreme market stress, some funds may "break the buck," though this is rare and typically limited to institutional prime funds. Additionally, in 2025, regulators are considering reforms around MMF liquidity buffers and redemption gates, so it’s important to monitor potential regulatory changes.

In conclusion, money market funds in 2025 are no longer just a placeholder for cash they’re a strategy. For those seeking safety, flexibility, and yield, government and Treasury-only MMFs offer a compelling alternative to traditional bank products. With interest rates still elevated, fee-conscious investors can earn over 5% on idle funds without taking on significant risk. But as always, due diligence matters. Comparing net yields, tax implications, and provider quality can turn a good MMF into a great one.