They’re investment choices, like bond funds, bonds, etc., not that illusory “cash on the sidelines.”

By Wolf Richter for WOLF STREET.

Households poured an additional $269 billion into money market funds (MMFs) in Q4, and their MMF holdings spiked to a record $5.08 trillion.  In all of 2025, households poured $583 billion into MMFs, according to the Fed’s quarterly Z1 Financial Accounts. These MMF balances include retail MMFs that households bought from their broker or bank, and institutional MMFs that households bought indirectly through their employers, trustees, and fiduciaries – such as in their 401(k) plans.

This spike in MMF balances occurred even as the Fed was cutting its overnight policy rates, and MMF yields declined in parallel with the rate cuts. But that trend of lower yields is now beginning to reverse as short-term Treasury yields have been inching higher for two months.

At current MMF yields of around 3.5% to 3.6% and at current MMF balances, households would earn $180 billion in interest in a 12-month period. Since Q1 2022, when the Fed started hiking its policy rates, balances have surged by $2.45 trillion.

Short-term yields have begun to rise again. Yields of Treasury bills, one of the alternatives to MMFs, inched up in February and so far in March, as investors took the chance of rate cuts in their time frame off the table. Money market funds follow the direction of T-bill yields with a lag. Short-term Treasury yields are now all above 3.71%.

The 1-year Treasury yield is beginning to price in the chance of a rate hike in its time frame; its yield has soared by 40 basis points from the low point on February 9 (3.42%) to 3.82% today.

MMF yields are determined by the instruments they invest in. Prime MMFs invest in repurchase agreements (repos); Treasuries and agency securities with a remaining maturity of less than 1 year, but largely less than 3 months; short-term asset-backed commercial paper; certificates of deposits with big banks (lending to banks), overnight reverse repos at the Fed (ON RRPs are now down to near $0 as the Fed pays only 3.5% on them, less than T-bills and less than repo market rates of around 3.62%), among others.

Treasury MMFs stick to short-term Treasuries and ON RRPs at the Fed.

Very short-term yields, such as repo rates, roughly track the Fed’s policy rates, which are designed to form a floor and ceiling for short-term market yields, especially the gigantic repo market, to which MMFs are big lenders. Since the December rate cut, the Fed has kept its five policy rates unchanged between 3.50% to 3.75%, including at the FOMC meeting this week.

Households and institutions combined poured $416 billion into MMFs in Q4 – including the $269 billion from households.

Total MMF balances ballooned to $8.19 trillion – including the $5.08 trillion held by Households.

Since Q1 2022, balances have ballooned by $3.10 trillion, including the $2.45 trillion from households.

At banks, large Time-Deposits (CDs of $100,000 or more) rose to a record $2.47 trillion in February, up by $26 billion from the prior month and up by $70 billion year-over-year, as per the Federal Reserve’s monthly report on bank balance sheets (H.8). The FDIC insures CDs up to $250,000.

Since March 2022, when the rate hikes began, and continuing even as the rate cuts began, large time-deposits have surged by $1.06 trillion. The rate cuts since September 2024 have only slowed the increase, not stopped or reversed it.

But small Time-Deposits (CDs of less than $100,000) fell to $1.02 trillion in January, per the Federal Reserve’s data on money stock (H.6). Since September 2024, when the Fed started cutting rates, balances have dropped by $170 billion.

Smalls CDs react fairly quickly and strongly to interest rates offered by banks. They’re not “sticky” at all. Investors shift into them and out of them depending on yields that banks offer. By early 2022, after two years of near-0%, balances of small CDs had dropped to near zero. But when the Fed started hiking rates, balances exploded.

Not “cash on the sidelines.” Money market funds and CDs are low-risk investment choices to earn a yield, similar to bond funds, T-bills, corporate bonds, government bonds, etc. They’re not that illusory “cash on the sidelines” that’s suddenly going to pour into the stock market when the floodgates open upon a divine signal to magically drive stock prices higher. Crypto is not “cash on the sidelines” either. Nor are gold and silver. They’re investment choices that are not stocks.

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