The collapse of Silicon Valley Bank, Silvergate, Signature Bank, and Credit Suisse this month has prompted investors to pull money from smaller, more vulnerable lenders and move it to safer places that also offer better returns.
This has prominently included money-market funds, which have seen yields juiced by the same rate hikes that crippled SVB's loan portfolio and sent people scrambling out of less established banks. With safer investments also offering better returns, the shift has been an easy decision for depositors.
Since the start of March, $286 billion has flowed into money-market funds, on pace for the biggest month since the depths of COVID, according to data compiled by EPFR and published by the Financial Times.
It's a shift that started back in early 2022, when the Federal Reserve started its ongoing path of rate increases. Since then, people have pulled $1 trillion from vulnerable banks and put them into money market funds and bigger institutions, JPMorgan data shows. Of that amount, half was reallocated after the collapse of SVB.
"Fed rate hikes have been increasing the yield advantage of Government Money Market Funds, given the bulk of their investments are in Fed's reverse repos and Tbills, both of which follow the Fed policy rate closely," JPMorgan strategists wrote in a recent note.
While money-market funds aren't guaranteed, they do invest in the safest and most liquid instruments, JPMorgan strategists said. That, combined with the increasingly attractive yields, makes them enticing for investors in the current environment.
"Depositors remain on edge and continue to pull deposits from banks, moving their cash to money market funds," Moody's chief economist Mark Zandi wrote in a tweet Sunday. "Money fund assets jumped again in the week ending last Wed and are up more in the past 2 weeks than any time save in the pandemic shutdown."
Here are the money-market funds offering the highest yields as of Friday, March 24, according to Bankrate.