The consensus read on America’s money market fund real yields is that households are behaving rationally, parking cash in safe, interest-bearing vehicles while they wait for the dust to settle. What the data underneath that read actually shows is something more uncomfortable: real yields on money market funds (MMFs) have turned negative, and households are still piling in.
Balances in MMFs held by households rose by $89 billion from the prior quarter and by $626 billion year-on-year, reaching $5.21 trillion in Q1, according to the Federal Reserve’s quarterly Z1 Financial Accounts. Since Q1 2022, when the Fed began hiking its policy rates, those balances have roughly doubled. The enrichment from the Z1 adds a layer of context the headline figure tends to obscure: household MMF shares climbed further to $5,419.1 billion in Q1 2026, while total MMF assets across all holders reached $8,289.6 billion in the same period. Households, in other words, account for well under two-thirds of the total MMF market (institutional and other flows are doing their own heavy lifting) yet the household share has kept expanding even as the real return on offer has deteriorated.
The inflation arithmetic the inflow story glosses over
MMFs are currently earning around 3.5%, down from over 5% in 2024 before rate cuts began. That figure sounds tolerable in isolation. Set against PCE inflation of 3.5% at the end of Q1, and a CPI rate that went over 4.2% in May, it stops looking tolerable quickly. At May’s CPI rate, money market fund real yields sit at roughly negative 0.7%. During January and February, MMFs were still outpacing inflation and producing a positive real return. That stopped in March for many funds and in April for all of them.
The mechanics behind the MMF yield are worth unpacking, because they explain why the yield cannot simply snap back to cover inflation on its own. Treasury MMFs invest in short-term Treasuries and overnight reverse repos at the Fed. Prime MMFs add repurchase agreements, short-term asset-backed commercial paper, and certificates of deposit with large banks. Most of those instruments currently yield between 3.66% and 3.91%, three-month Treasury yields sit at 3.71%, six-month at 3.80%, and asset-backed commercial paper at roughly 3.75% for 30-day paper and 3.85% for 90-day paper. The gap between those instrument yields and what households actually receive is the fee extracted by the MMF provider. There is no hidden pool of higher-yielding assets waiting to be tapped.
CDs: a marginally better deal, but the same real-yield problem
Large time-deposits (certificates of deposit (CDs) of $100,000 or more) reached a record $2.52 trillion in April, up $49 billion from the prior month and $169 billion year-on-year, per the Federal Reserve’s monthly H.8 report on bank balance sheets. Since March 2022, large CD balances have surged by $1.11 trillion. FDIC insurance covers CDs up to $250,000, which removes credit risk from the equation but does nothing to address the inflation problem.
Banks have begun competing more aggressively on brokered CDs (bank CDs sold through stockbrokers) where they go head-to-head with other institutions for deposits. Top yields on CDs of nine months or longer are currently running above 4% APY, making them a marginally better deal than Treasury bills. The market is reading that as a signal: banks appear to be pricing in rate hikes. The bond market currently expects the first hike late this year and another next year, though that expectation is not a guarantee, it is a directional lean, not a commitment.
Small time-deposits (CDs under $100,000) ticked up in April to $1.02 trillion after falling for six months in a row, per the Fed’s H.6 data on money stock. Since the rate-cutting cycle began in September 2024, small CD balances have dropped by $172 billion. Unlike their larger counterparts, small CDs are not sticky: holders move in and out quickly in response to the yields banks offer. The recent uptick suggests even modest yield improvements are enough to pull money back in, which cuts both ways, since it implies those flows could reverse just as fast.
The deeper issue is one that the narrative of rational cash-parking tends to wave past. Money market fund real yields are negative now, and the instruments available to conservative savers (MMFs, CDs, Treasury bills) share the same structural ceiling. Other assets carry the possibility of capital gains that might, over time, outrun inflation. They also carry the possibility of capital losses on top of which inflation then operates as an additional drag. Inflation-linked instruments such as Treasury Inflation Protected Securities (TIPS) and Treasury I-series savings bonds offer automatic inflation compensation tied to CPI, though at a low base rate. The Federal Reserve may eventually move rates higher, but until that happens (and perhaps even after) households sitting in $5.4 trillion of MMFs are, in real terms, losing ground quietly and at scale.
