Investors looking for safety and attractive yields are flocking to money market funds at record rates. Funds that invest in very short-term bonds issued by governments and investment-grade companies are low-risk. A new report from Bank of America shows that an average of $18 billion a day has been moved into money market funds since March 10. Retail assets in these funds now stand at more than 1.25 trillion dollars, according to the Investment Company Institute. Money market funds also deposit their government bonds with their respective central banks through a program called “reverse repurchase agreements”. The U.S. government describes these facilities as a “temporary supplementary instrument to support the Federal Reserve’s program to pay banks interest on excess reserves held at the central bank. ” This allows money market funds to give investors returns that match the central bank’s prime rate minus fees and transaction costs – meaning investors can make money with higher interest rates. For example, in the US, the Crane 100 Money Market Fund Index is currently posting a seven-day annualized yield of 4.61% as of April 4. The table below shows more than 35 delivered money market funds. widely available as ETFs worldwide. The interest rates offered and the total expense ratio (fund fees) vary between funds. Unlike higher-interest savings accounts, which typically lock in cash for a year or so, money market funds are also more liquid. Their increased liquidity makes them an attractive cash-like option for investors looking for higher yields. According to fund provider Fidelity, most assets in these funds are “quickly convertible to cash” within five to seven business days. Regulators in the United States also prevent money market funds from holding more than 5% of their assets in illiquid assets. Flight to Safety Bank of America analysts note that the recent flight to safe assets stems from the failure of Silicon Valley Bank in the United States and the forced rescue of Credit Suisse in Europe. However, the small interest rates banks offer on savings accounts don’t help either. In the euro area, household savings rates remained as low as 0.12% in March, despite the European Central Bank’s year-long interest rate hike campaign. The picture is similar in the United Kingdom, Canada and the United States. Negative Risk Money market funds are considered safer than stocks and bonds, however, they are not backed by government insurance programs such as deposit guarantee schemes at bank. Vanguard, another money market fund provider, also said the funds are “not recommended for investors looking to increase the value of their investments over the long term.” Since funds follow the central bank’s prime rate as closely as possible, they are susceptible to a drop in returns with little or no notice. And while they offer rates that are relatively higher than they are today, they are still below inflation.