Schwab Government Money Market Funds Are A Safe Haven For Higher Cash Returns in 2024

Larry, Managing Editor

charles schwab government money market funds earning super safe cash income high 7 day yield

Schwab government money market funds are some of the safest and simplest investments that generate income. These funds are currently generating yields of over 5%. If you have a Schwab brokerage account, you can compare money market fund rates to what you’re earning in your bank account, which is usually close to nothing. Schwab government money market funds are the safest type of money market funds and one of the best alternatives to consider compared to keeping cash in a bank account.

What Is a Schwab Government Money Market Fund?

Government money market funds, compared to other money market funds on the platform, are one of the safest and highest-earning Schwab cash investments you can buy. These funds are required to invest in some of the highest quality investments, mainly U.S. Treasuries and short-term debt collateralized by U.S. Treasuries (also called repurchase agreements, or repos).

Because a government money market fund generates income, Schwab passes this interest income onto you, the investor. These yields are much higher than what you’d earn with your bank.

Schwab’s goals with these funds are to provide investors the ability to preserve cash, generate income, and stay liquid. Schwab makes money by charging an expense ratio, around 0.40% for their government money market funds. 

How Does a Government Money Market Fund from Schwab Work?

Schwab is required by the SEC to invest close to 100% (99.5%) of their government money market funds into short-term, extremely high-quality, and very liquid securities, such as U.S. Treasuries.

Government money market funds must maintain a consistent net asset value (NAV) of $1 per share. For investors, this means that the price at which you buy or sell Schwab government money market shares remains the same.

Top Choices for Schwab Government Money Market Funds

Schwab offers a few government and U.S. Treasury money market funds, listed below:

  • Schwab Government Money Fund — Investor Shares (SNVXX)
  • Schwab Treasury Obligations Money Fund — Investor Shares (SNOXX)
  • Schwab U.S. Treasury Money Fund — Investor Shares (SNSXX)

SNVXX is a government money market fund that invests in Treasuries, repos, and other securities such as mortgage debt. SNOXX invests in U.S. Treasuries and repos. SNSXX exclusively buys U.S. Treasuries, which means it’s entirely tax-exempt from state taxes. 

All three have a net expense ratio of 0.34%, and a minimum investment of only $1, making it a very accessible investment.

As of April 2024, the SNVXX 7-day yield is 5.03%, while SNOXX has a 7-day yield of 5.02%. The SNSXX 7-day yield is 5.02%.

The 7-day yield is the average income return over the previous seven days, assuming the rate stays the same for one year.

Generally, the yields of Schwab’s three funds are very similar. SNSXX is the safest of the three, followed by SNOXX, then SNVXX.

Why Cash In A Schwab Government Money Market Fund Is Better Than Your Bank

A government money market fund from Schwab is generally better than keeping your cash in a bank. Here are some reasons why:

  1. Passive Income: Schwab government money market funds, such as SNVXX, SNOXX, and SNSXX, offer higher yields than traditional bank savings accounts. Right now, those funds are paying an annual yield of around 5%, much higher than most bank savings accounts.
  2. Very Low Risk: Government money market funds are regulated by the Securities and Exchange Commission (SEC) and are subject to strict investment guidelines. Schwab funds must invest in high-quality, low-risk government securities, making them safe and stable investment options.
  3. Liquidity: Schwab government money market funds are popular investments with a secondary market. In contrast, bank and savings accounts have rigid withdrawal restrictions or penalties. Some banks even charge a fee to maintain your cash.

While your bank and savings accounts are covered by the FDIC under deposit insurance, the securities in Schwab government money market funds do not have the same insurance. However, Treasury bills and other U.S. Treasury securities are directly backed by the U.S. government, which is as safe as an assurance you can get.

A money market fund is also a great introduction to income investing, a strategy that takes advantage of generating income from your cash through investing. This is the best path to generating passive income and earning towards financial freedom.

Are Government Money Market Funds from Schwab Safe?

Schwab government money market funds are amongst the safest investments available today. Due to the strict requirements of what these funds can invest in, these funds are very stable investments.

Should You Buy Schwab Government Money Market Funds Or Other Money Market Funds?

If you are new to money market funds and want something extremely safe and stable that also earns you income, government money market funds from Schwab are a good bet.

Compared to other types of money market funds such as prime money market funds and municipal money market funds, government money market funds are required to invest in some of the safest and most stable assets. 

If you’d like to look at options that generate higher yields, Schwab offers prime money market funds (such as SWVXX, Schwab Value Advantage Money Fund) and municipal money market funds. These funds will invest in other securities such as corporate debt or state debt. 

What Other Investments Can I Consider Buying from Schwab?

Depending on your appetite for liquidity and how hands-on you want to be, you can consider other products from Schwab such as brokered CDs or Treasury bills, instead of Schwab government money market funds.

Some Schwab brokered CD rates may be higher than those of money market funds, but CDs are generally more illiquid. Due to less liquidity, you might not get your desired price when selling your Schwab CDs before maturity.

You can also buy Treasury bills on Schwab directly, if you’d like more flexibility and to avoid paying the expense ratio on Schwab. If you choose to do this, begin paying attention to things like when new auction sales from the U.S. Treasury occur, when your T-Bills mature, and how to build a T-Bill ladder to maximize liquidity and returns.