Could savings rates decrease further if interest rates fall? According to this specialist, it's wise to secure those returns now.

Americans Flock to Money Market Funds Amid High Yields

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With interest rates remaining elevated, many Americans have been channeling their savings into money market accounts.

Main Points

• Money market funds have surged in popularity recently, reaching a record $7.8 trillion in assets as of early January.
• According to Roland from Manulife John Hancock, as inflation becomes less of a concern for the Federal Reserve, yields on these funds are likely to decrease.

This year, money market funds may not deliver the same attractive returns as before.

Emily Roland, co-chief investment strategist at Manulife John Hancock Investment Management, told CNBC that investors should consider locking in current yields, as the firm expects returns on money market accounts to fall throughout the year. "Yields on money market funds are likely to be reduced," she noted.

Over the past two years, investors have poured significant amounts into money market funds, drawn by their short-term, low-risk nature. According to Ycharts, total assets in these funds recently hit a record $7.8 trillion. However, as these yields are closely tied to the Federal Reserve's interest rate decisions—which are expected to trend downward by the end of 2026—money market funds may become less appealing for those looking to park their cash.

Why This Is Important

The strong inflows into money market funds have been driven by their relatively high returns. If these returns diminish, investors may start seeking other options.

Roland explained, "We believe inflation is no longer the main issue for the Fed; the focus has shifted to the labor market this year. If inflation continues to ease and the bond market adjusts accordingly, we anticipate yields will decline as the year progresses."

Recent reports indicate that inflation is slowing and the job market is showing signs of weakness. Additionally, with President Donald Trump expected to nominate a new Fed chair and his preference for lower interest rates, further rate cuts could be on the horizon, according to Ted Rossman, senior industry analyst at Bankrate.

However, these rate reductions may be delayed compared to earlier expectations. The CME FedWatch tool shows that there is now over a 60% chance the current benchmark rate of 3.5% to 3.75% will remain unchanged by the April Fed meeting, up from 39% in early January. By December, most traders anticipate rates will fall to between 3% and 3.25%.

Rossman predicts that the highest yields available on savings and money market accounts will decline, though they may still outpace inflation. He expects top annual percentage yields to reach around 3.7%, about one percentage point lower than last year's peak.

Even so, these yields remain well above the current national average for savings accounts, which the FDIC reports at just 0.39%.