Close Close

Portfolio > Asset Managers

How Asset Managers Are Addressing the Threat of Negative Yields

Your article was successfully shared with the contacts you provided.

The most popular and safest investments during the COVID-19 pandemic are under threat from potentially negative interest rates, and asset managers are responding.

In a FAQ for investors, TIAA said it was waiving expenses for its CREF Money Market Account and for the TIAA-CREF Money Market Fund, an investment option within its TIAA Access annuity product, to prevent negative yields because current short-term rates are too low to cover those expenses.

Most important, TIAA said it will not renew the waiver for the money market account, after it expires on Dec. 31, at which point the account, which is a variable annuity, “will be at risk of experiencing negative yields, if interest rates do not increase.” 

Moreover, TIAA says that the waived fees “will be subject to possible recovery… After the waiver expires, once short-term rates rebound, producing a positive yield for an investor’s money market account class.”

The TIAA-CREF Money Market Fund, an investment option within the TIAA Access annuity product, also faces potentially negative interest rates not because the waiver will expire — it won’t — but because the TIAA Access separate account wrap fees are not included in the waiver. 

TIAA is advising that anyone invested in these accounts review their investments. More specifically it recommends that investors in the CREF Money Market Account, especially those with a significant allocation, “review their overall financial goals ….tolerance for risk and the ideal asset allocation” and make adjustments as necessary. 

A TIAA spokesman said the firm is required by its regulator, the New York Department of Financial Services, to recoup a portion of the fees in order  to protect investors’ long-term interests since TIAA operates on a not-for-profit basis and provides its services to CREF at cost.

Should interest interest rates remain low after the expense waiver expires, one or more classes of the CREF Money Market Account could have negative returns and investors should be prepared for that possibility, according to TIAA. 

Dan Wiener, chair and co-founder of Adviser Investments and editor of The Independent Adviser for Vanguard Investors, called the potential clawback of the fee waiver for the CREF Money Market Account “outrageous.” He added that investors “would have to be out of their minds” to keep money in a money market account that will recoup its fee waiver from investments once yields turn positive.

A TIAA spokesman said the firm “is required by its regulator, the New York Department of Financial Services to recoup a portion of the fees in order to protect TIAA participants’ long-term interests because TIAA operates on a not for profit basis and provides its services to CREF at cost.”

In another sign of negative rate fears for money market funds, Fidelity Investments in mid-March waived fees on several U.S. Treasury and U.S. government money market funds sold exclusively through intermediaries — which tend to have higher expense levels than other funds — in order ”to maintain positive net yields on those share classes.” 

The funds are the Daily Money Class and Capital Reserves Class of its U.S. Treasury and U.S. Government Money Market funds — the Advisor Class C for the Treasury fund and Advisor Class M for the government money market fund — and the FIMM Treasury Portfolio, Class IV.

Fidelity left open the possibility of more fee waivers or reimbursement of certain fee expenses or a combination of both if money market yields approach zero to help ensure that investors receive a positive yield. It added that “any such waiver would be voluntary and could be discontinued at any time [and] there is no guarantee that a fund will be able to avoid a negative yield.”

Closing Money Market Funds to New Investors

In another effort to protect money fund investors against negative yields, Fidelity announced in late March that it was closing three money market funds to new investors outside of retirement plans that had established that option by March 31.

“Restricting inflows will help reduce the number of new Treasury securities that the funds will need to purchase,” which generally have lower yields and “would affect the funds’ ability to continue to deliver positive net yields to shareholders.”

Vanguard made the same decision for its Treasury Money Market Fund in mid-April, closing the fund to new investors because net new flows would threaten an even lower yield. At the time, the fund’s seven-day yield was 0.64%; as of May 22 it was 0.26%.

(Related: Vanguard Abruptly Closes Treasury Money Market Fund to New Investors)

The Growing Popularity of Money Market Funds 

Investors poured over $1 trillion into money market funds in March and April combined, according to Morningstar net fund flows data.

(Related: Fund Flows Turned Positive in April, but Investors Favored Safety)

Total money market fund assets currently top $5 trillion, according to Crane Data. “The asset inflows have been incredible,” said Peter Crane, president of Crane Data, in a recent note. “I‘​m guessing we’​re going to see a flattening out [​of asset growth]. But this cash war chest that you’ve seen raised — no cash bucket is big enough for the coronavirus or is big enough, for individuals, governments, institutions.”

He doesn’t expect much change in the size of those assets even if money market yields turn negative.

Will Money Market Yields Turn Negative?

Whether yields will turn negative remains uncertain. Fed Chairman Jerome Powell recently said that he and all members of the Fed’s policymaking Federal Open Market Committee oppose the idea of a negative federal funds rate, now set in a range between zero and 0.25%.

In his recent talk with Adam Posen, president of the Peterson Institute for International Economics, Powell also said the Fed didn’t use negative rates during the 2008 financial crisis, choosing instead forward guidance and asset purchases, and “intends to continue to use those tools.” Evidence about the effectiveness of negative rates, which exist in several European countries and in Japan, is mixed, and there are concerns that negative rates would reduce bank profitability and credit availability, said Powell.

That’s the opposite of what negative rates are intended to do. They are intended to be a disincentive for banks to park money at their country’s central bank because that would cost them and to encourage banks instead to increase lending and therefore stimulate the economy.

Despite the Fed’s position, Greg McBride, chief financial analyst at, said negative rates were an inevitability though not imminent “because every other central bank is going negative” and “at some point the Fed will join the party.” He added that “even if the Fed never goes there, the Treasury yield curve could go negative, which would cause problems for money funds.”

McBride and Ken Tumin, founder of, both recommend that investors searching for positive yield consider high-yielding FDIC-insured savings accounts instead of money market accounts and money market funds because they have much higher yields, about 10 times higher.

A $100,000 account could earn more than $1,000 in an online savings account over a a year compared to just $10 in a money market fund, Tumin said. “If investors want to keep savings in cash for a while, they’re better off in an online savings account.”

— Related on ThinkAdvisor: