Money fund fees

Question: I think that the fees charged for money market funds are excessive, especially the MERs. I would like your point of view on the subject. – J.T.


There is no doubt that some money fund MERs are way out of line, and the high expense ratios are particularly noticeable during period of low interest rates when money fund yields are low.

I recommend that people look at the MER history of a money fund before making a purchase. Anything higher than 1% is too expensive, in my view. The rule of thumb is the lower, the better.

However, MERs aren’t the full story. Investors must also be wary of paying commissions for money fund purchases. Sometimes they may not realize they are on the hook for a deferred sales charge and then are shocked to see it imposed when they sell. There is one cardinal rule for investing in money market funds: never pay a sales commission, either on buying or selling.

In this regard, people should ask when they buy what they believe to be a no-load money fund whether there is a minimum holding period. Some funds will impose a charge of 2% if you cash in within 90 days of purchase. That would we out any interest you’ve earned and more. Avoid such funds if you think you may need to access the cash quickly. – G.P.