Money-Market ETFs Have Arrived. Should You Buy One?

(BRENDAN SMIALOWSKI/AFP via Getty Images)

Key Points

• Newly launched money-market ETFs, including the $3.4 billion Simplify Government Money Market, have quickly accumulated assets.
• Money-market ETFs differ from mutual funds by trading intraday, with fluctuating market prices, unlike mutual funds’ stable $1 net asset value.
• These ETFs have annual costs ranging from 0.15% to 0.28%. Current SEC yields are approximately 4.1%.

Not too long ago, investors who wanted to park cash in an exchange-traded fund version of a money-market mutual fund had to settle for ultrashort-dated bond ETFs as a proxy.

That has changed with the recent launch of a few money-market ETFs, which have quickly gained assets, even as the Federal Reserve cuts interest rates.

The handful of money-market ETFs include the $3.4 billion Simplify Government Money Market , the $361.2 million iShares Prime Money Market , the $269.3 million Schwab Government Money Market , the $77.2 million iShares Government Money Market , and the $60 million Texas Capital Government Money Market , which kicked off the category when it launched in September 2024.

Their assets are still a drop in the bucket of the $7.4 trillion sitting in traditional money-market funds, according to the Investment Company Institute. But if money-market ETFs capture just a fraction of that total, it would still be significant.

The new ETFs follow the strict Securities and Exchange Commission guidelines regulating money-market funds. Those rules mandate that the funds invest in mostly daily and weekly liquid, diversified, high-quality debt. Investors often use the funds as de facto savings accounts, so the liquidity characteristics are important. Steve Laipply, global co-head of iShares fixed-income ETFs at BlackRock, says the asset manager designed its funds for such investors.

The main difference between money-market mutual funds and their ETF counterparts is that the former have a stable $1 net asset value. Money-market ETFs trade intraday like any fixed-income ETF, so the market price may fluctuate above or below the NAV. That could affect the value of your investment when it’s time to cash out.

The fluctuations, though, are slight because of what the ETFs hold, Laipply says. The iShares Prime Money Market ETF has a maximum premium of 12 basis points over NAV and a discount of 10 basis points. The iShares Government Money Market ETF has a 10-basis-point premium and a two-basis point discount. (A basis point is 1/100th of a percentage point.)

“I think the investor base who wants to use these products—as opposed to the traditional mutual fund product—really do prize that intraday trading [and] the transparency,” Laipply says.

The ETFs’ annual costs range between 0.15% to 0.28%, slightly higher or equivalent to ultrashort-dated bond funds, but cheaper than some of the biggest traditional money-market mutual funds.

ETFs’ cheaper costs have helped them hoover up assets from mutual funds over the years and across asset classes. But whether money-market ETFs make inroads into this segment remains to be seen, says Elisabeth Kashner, director of global funds research at FactSet.

Part of it will depend on how the major brokerages treat these products, since most have their own money-market funds. Brokerages can keep ETFs off their platform and decide if an ETF qualifies for commission-free trading. If not, that can make a money-market ETF costly.

Brad Clark, CEO of Solomon Financial, uses money market mutual funds regularly for his clients and has used ultrashort-duration bond ETFs. He says he’ll stick with the money-market mutual funds for clients’ near-term cash needs.

“If I put in a fixed amount of money, I can be confident that amount of money is sitting there [because] the NAV stays stable. I’m not worried about it bouncing around,” he says.

Yields on ultrashort bond ETFs and money-market mutual funds and ETFs will reflect changes in interest rates quickly as the Fed potentially continues to cut rates, but right now the SEC yields on these funds are around 4.1%.

If an investor is choosing between a money-market ETF and an ultrashort bond fund, Kashner says investors need to look at the holdings, as some ultrashort bond ETFs may have a degree of credit risk.

“If you’re super worried about credit risk, stick to government funds,” she says.

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