How do you calculate the yield of a money market fund?
Money market yield is calculated by taking the holding period yield and multiplying it by a 360-day bank year divided by days to maturity. It can also be calculated using a bank discount yield.
Money market securities are debt instruments with maturities of less than one year. They are characterized by high levels of liquidity and safety, resulting in low risks and low returns. The money market yield is 360 divided by the time to maturity, multiplied by the holding period yield (HPY).
For stocks, yield is calculated as a security's price increase plus dividends, divided by the purchase price.
What is the 7-day yield? The 7-Day Yield represents the annualized fund yield based on the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.
The formula involves taking the value of a share including earnings at the end of a 7-day period (X), subtracting the value of the share at the beginning of the period (Y) as well as shareholder fees and fund operating expenses (Z), dividing the resulting amount by the value of the share at the beginning (Y again), and ...
| Account | Sallie Mae Bank Money Market Account |
|---|---|
| Best For | Best for Savings Goals |
| Annual Percentage Yield | 4.65% |
| Minimum Deposit Requirement | $0 |
| Learn More | Learn More On Bankrate.com's Website |
| Bank | Account Balance | Rates |
|---|---|---|
| Regions Bank | $0 – $9,999 $10,000 – $250,00+ | 1.50% 2.00% |
| Santander | $0 – $9,999 $10,000+ | 0.03% 0.05% |
| U.S. Bank Elite Money Market | $0 – $24,999 $25,000 – $500,000+ | 0.01% 0.25% Bonus 4.50% |
| U.S. Retirement Money Market | All balances | 0.01% |
The calculation for yield differs depending on the type of yield. The common formula is income (eg from dividends or interest payments) divided by investment value. This can then be multiplied by 100 to get a percentage figure.
The earnings yield is the inverse ratio to the price-to-earnings (P/E) ratio. The quick formula for Earnings Yield is E/P, earnings divided by price. The yield is a good ROI metric and can be used to measure a stocks rate of return.
The seven-day yield is a method for estimating the annualized yield of a money market fund. It is calculated by taking the net difference of the price today and seven days ago and multiplying it by an annualization factor. Since money market funds tend to be very low risk, the higher the seven-day yield the better.
How long should you hold a money market fund?
Money market funds are usually considered to be safe investments, but it's important to remember that these investments are intended for the short term. With maturities of 13 months or less, the funds stay liquid and allow you better access to your money than longer-term investments.
The 30-day yield is an SEC-standardized metric that helps bond fund investors compare assets. It's based on the most recent 30 days of income for a particular bond fund.
The formula for calculating simple interest is: Interest = P * R * T. P = Principal amount (the beginning balance). R = Interest rate (usually per year, expressed as a decimal). T = Number of time periods (generally one-year time periods).
If you're in the mood for a little math, you can calculate the APY on any bank account using this formula: APY = (1+r/n)n – 1. In this equation, “r” stands for the listed annual interest rate as a decimal. If the interest rate is listed as 0.04%, you'd insert it as 0.0004 in the formula.
For example, $1,000 put into an account with an annual interest rate of 5% would, in theory, earn $50 at the end of the year. However, if the rate is 5% with interest earned monthly, the APY would actually be 5.116%, earning you $1051.16 by the end of the first year.
Disadvantages of money market accounts
For example, you often won't earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer.
How Do Money Market Accounts Work? Money market accounts work like other deposit accounts, such as savings accounts. As customers deposit funds in a money market account, they earn interest on those funds. Typically, interest on money market accounts is compounded daily and paid monthly.
The yield is the income the investment returns over time, typically expressed as a percentage, while the return is the amount that was gained or lost on an investment over time, usually expressed as a dollar value.
| Rank | Fund | Yield |
|---|---|---|
| 1 | Vanguard Federal Money Market Fund (VMFXX) | 5.31% |
| 2 | Schwab Value Advantage Money Fund Investor Shares (SWVXX) | 5.28% |
| 3 | PIMCO Government Money Market Fund (AMAXX) | 5.27% |
| 4 | Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX) | 5.32% |
We found that the median money-market fund returned 4.2% over the past year, compared with 0.49% annualized over the 10 years before 2022. (All returns are presented after subtracting annual fees.)
What is the best money market account right now?
- Northern Bank Direct – 4.95% APY.
- All America Bank – 4.90% APY.
- Redneck Bank – 4.90% APY.
- First Foundation Bank – 4.90% APY.
- Sallie Mae Bank – 4.65% APY.
- Prime Alliance Bank – 4.50% APY.
- Presidential Bank – 4.37% APY.
- EverBank – 4.30% APY.
Yield is the annual net profit that an investor earns on an investment. The interest rate is the percentage charged by a lender for a loan.
To calculate the current yield of a bond in Microsoft Excel, enter the bond value, the coupon rate, and the bond price into adjacent cells (e.g., A1 through A3). In cell A4, enter the formula "= A1 * A2 / A3" to render the current yield of the bond.
bond yields-to-maturity are annualized and compounded. However, yield measures in money markets are annualized but not compounded. The rate of return is stated on a simple interest basis; bond yields-to-maturity are calculated using the standard time value of money.
How safe are money market funds? There is little risk associated with money market funds. The U.S. Securities and Exchange Commission (SEC) mandates that only the highest-credit-rated securities are available in money market funds.
References
- https://www.ig.com/uk/glossary-trading-terms/yield-definition
- https://www.cnn.com/cnn-underscored/money/best-money-market-mutual-funds
- https://www.investopedia.com/ask/answers/021815/how-do-i-calculate-yield-excel.asp
- https://www.troweprice.com/personal-investing/resources/insights/4-reasons-to-save-in-a-money-market-fund.html
- https://corporatefinanceinstitute.com/resources/valuation/earnings-yield/
- https://analystprep.com/cfa-level-1-exam/fixed-income/4-types-yield-money-market-instruments/
- https://www.quickenloans.com/learn/apy
- https://www.investopedia.com/terms/s/seven-day-yield.asp
- https://www.bankrate.com/investing/what-is-a-money-market-fund/
- https://www.investopedia.com/ask/answers/09/difference-between-yields-and-interest-rate.asp
- https://www.fool.com/terms/0-9/30-day-yield/
- https://www.investopedia.com/ask/answers/difference-between-yield-and-return/
- https://www.plynkinvest.com/learn/what-is-a-7-day-yield/
- https://www.schwab.com/money-market-funds
- https://www.investopedia.com/terms/y/yield.asp
- https://www.bankrate.com/banking/mma/money-market-account-advantages-and-disadvantages/
- https://smartasset.com/checking-account/average-money-market-rates
- https://www.nerdwallet.com/article/banking/how-to-calculate-interest-in-a-savings-account
- https://corporatefinanceinstitute.com/resources/fixed-income/money-market-yield/
- https://hfsfcu.org/education/what-is-apy/
- https://www.forbes.com/advisor/banking/money-market-account/what-is-a-money-market-account/
- https://www.investopedia.com/best-money-market-accounts-5096917
- https://www.forbes.com/advisor/banking/money-market-account/best-money-market-accounts/
- https://www.wsj.com/finance/investing/money-market-funds-yield-648d2361
