That mattress is starting to look like an awfully tempting place for folks to park their idle cash about now.
Money market funds sank to a new low this past week. According to IMoneyNet.com, the yield on the average taxable money market fund has fallen to a pathetic 0.91%. At this rate, $10,000 in a money market fund would fetch you barely $90 in interest income over the course of a year -- and that's before the tax bite.
Meanwhile, the Dow Jones Industrial Average is yielding more than twice as much at 2.04%. Just six of the 30 Dow components -- American Express
It's hard to believe that blue chips such as Coca-Cola
How did this happen? Well, while interest rates have fallen, most companies have held true to their dividend rates. Falling stock prices have widened the gap, producing higher yields based on fixed payout amounts divided by a lower share price. Sure, the Dow has come back strong in recent weeks, but it's still down by nearly 15% to date.
The paltry payouts haven't kept cautious investors from piling up just over $2 trillion in money market fund assets. Stocks are obviously not a substitute for the risk-averse. However, one begins to wonder how far yields will have to fall before some of that money is either poured back into the stock market or stashed back under that mattress. Counting down to nil can be painful.
Could it happen? Could money markets come to resemble Microsoft, with all that cash and nary a dividend? Don't bet on it. But, until then, just remember that 24 of the 30 Dow stocks are tipping better than your money market fund.