US money-market yields haven't been this juicy for 22 years, thanks to the Fed's interest-rate rises

A dog in pink shades and covered in dollar bills.

Geraint Rowland Photography/ Getty Images

• The Fed has lifted interest rates to the highest level in two decades in its war against inflation. 
• While that made borrowings more expensive, it also boosted yields on cash and cash-like assets to historic highs – making them attractive for retail investors. 
• Over $472 billion has flowed into money market funds since mid-March, as the popularity of such investments surged.

Last week, the Federal Reserve increased interest rates to levels not seen for 22 years. From mortgages to car loans, borrowing costs have climbed to historic highs and, for many experts, a US recession looms on the horizon.

However, these high rates are music to the ears of many retail investors who hold cash and cash-like assets. Over most of the last decade, near-zero rates eroded any real returns on savings, while the stock market enjoyed year after year of strong gains, with the S&P 500 rising on average 13% each year. 

But now, tight monetary policy has once again burnished the appeal of Treasury bills and bonds, savings accounts, and bank certificates of deposit. Six-month US bills are offering a yield of about 5.5%, the highest since 2001, according to Refinitiv data.

The total assets of US money-market funds have surged by $472 billion since mid-March to a record $5.5 trillion, data from the Investment Company Institute (ICI) show, underscoring the rising popularity of the asset class among investors. 

Better returns from these investments are also helping offset some of the pain caused by the rate rises. While interest payments have ballooned by $151 billion from one year ago, households are taking in an additional $121 billion from cash-related investments, according to Commerce Department data cited by the Wall Street Journal. 

Over 3 million savings accounts began to earn a level of interest above their personal savings allowance in April 2023, making them liable to tax – and this is 13 times higher than the same month in 2022, according to Forbes.

While cash-like assets have made a comeback, the US stock market continues its remarkable rally, supercharged by the stellar performance of a handful of mega-cap tech stocks. 

The S&P 500 is up 20% year-to-date, and capped a strong July of gains driven by solid earnings and cooling inflation.

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