Top 5 Vanguard Money Market Funds for Steady Returns in 2025

Introduction:

If you're looking for a safe place to park your cash while still earning decent returns, money market funds might be the answer. These investment options offer higher yields than traditional savings accounts and give you easy access to your money. Whether you're saving for a short-term goal or want to reduce risk in your portfolio, money market funds provide a steady and reliable way to grow your money without the ups and downs of the stock market.

We’ll explain what money market funds are, why many investors trust Vanguard’s funds, and the key risks to watch out for — all in simple terms anyone can understand.

Summary

1. Why Money Market Funds Are a Smart Option for Cautious Investors
2. What Are Money Market Funds?
3. Why Choose Vanguard Money Market Funds?
4. Risks to Know Before You Invest
    1. Interest Rate Risk
    2. Inflation Risk
    3. Default Risk
5. Top Vanguard Money Market Funds
6. Vanguard Federal Money Market Fund (VMFXX)
7. Vanguard Treasury Money Market Fund (VUSXX)
8. Vanguard New York Municipal Money Market Fund (VYFXX)
9. Vanguard California Municipal Money Market Fund (VCTXX)
10. Vanguard Municipal Money Market Fund (VMSXX)

1. Why Money Market Funds Are a Smart Option for Cautious Investors

Good investing isn’t just about growing your money — it’s also about protecting it. That’s where risk management comes in. If you don’t manage risk, a stock market dip could cause big losses.

Some people don’t like the ups and downs of the stock market. They prefer steady income and less risk. That’s why many turn to money market funds. These funds aim to keep their price steady and provide decent returns.

2. What Are Money Market Funds?

Money market funds are a type of investment that usually pay more than a savings account. They also let you access your money easily — there’s no limit on how often you can take money out.

But they’re not insured by the Federal Deposit Insurance Corporation (FDIC). That means if something goes wrong, your money isn’t guaranteed like it is in a regular bank account.

Still, these funds invest in safe, short-term government bonds and similar low-risk assets. They usually try to keep the share price at $1 per share, and you can either take your interest as cash or reinvest it.

3. Why Choose Vanguard Money Market Funds?

Many companies offer money market funds, but Vanguard stands out because of its low fees. Lower fees mean you get to keep more of your earnings.

Even though the Federal Reserve cut interest rates three times in 2024, rates are still high. This is good news for people using money market funds — you can earn more income with less risk.

During times like this, money market funds can provide stability and a steady cash flow, while stocks might lose value.

4. Risks to Know Before You Invest

While money market funds are usually safe, here are three things to watch out for:

1. Interest Rate Risk

These funds earn more when interest rates are high. If the Fed lowers rates again in 2025, your returns could go down.

Want to lock in a higher rate? Look into a certificate of deposit (CD) — you can choose how long to keep your money in and lock in a fixed return.

2. Inflation Risk

If inflation is high, it can eat away at your earnings. For example, if a fund pays 3% and inflation is 2%, you’re really only gaining 1% — and that’s before taxes. Stocks often do a better job of beating inflation over time.

3. Default Risk

There’s always a small chance that a bond issuer might not pay what they owe. But this is very rare with money market funds because they invest in safe, short-term bonds.

5. Top Vanguard Money Market Funds

6. Vanguard Federal Money Market Fund (VMFXX)

The Vanguard Federal Money Market Fund (VMFXX) is a low-risk investment option that currently offers a 4.23% yield. It primarily invests in short-term U.S. government securities, making it a safe choice for conservative investors. With an average maturity of 35 days, the fund is designed to respond quickly to changes in interest rates while maintaining stability. VMFXX manages a massive $351 billion in total assets, showing strong investor confidence. This fund is a great option for people who want steady income with minimal risk and easy access to their money.

7. Vanguard Treasury Money Market Fund (VUSXX)

The Vanguard Treasury Money Market Fund (VUSXX) is a very safe and highly liquid investment that currently offers a 4.23% yield with a low expense ratio of just 0.07%. The fund invests 96.7% of its assets in U.S. Treasury bills, which are backed by the federal government, making it one of the most secure options available. With an average maturity of 42 days, VUSXX is well-positioned to handle interest rate changes while maintaining stability. The fund manages $92 billion in total assets, attracting investors who prioritize safety and quick access to their cash.

8. Vanguard New York Municipal Money Market Fund (VYFXX)

The Vanguard New York Municipal Money Market Fund (VYFXX) is designed specifically for New York residents, especially those in higher tax brackets looking to earn tax-free income. The fund offers a 2.45% yield that is exempt from both federal and New York state income taxes, making it an attractive option for local investors. It invests in short-term, high-quality New York municipal bonds and has an average maturity of just 9 days, allowing it to quickly adapt to interest rate changes. With $3.5 billion in total assets, VYFXX provides a conservative, low-risk way for New Yorkers to preserve their capital and earn steady, tax-free returns.

9. Vanguard California Municipal Money Market Fund (VCTXX)

The Vanguard California Municipal Money Market Fund (VCTXX) is a great option for California residents who want to earn tax-free income. It currently offers a 1.84% yield, which is exempt from both federal and California state income taxes. The fund focuses on short-term, high-quality California municipal bonds and has an average maturity of 8 days, helping it stay stable and responsive to interest rate changes. With $3.8 billion in total assets, VCTXX is a

10. Vanguard Municipal Money Market Fund (VMSXX)

The Vanguard Municipal Money Market Fund (VMSXX) is ideal for investors outside of New York and California who want to earn tax-free income. It offers a 2.50% yield and invests in a diversified mix of high-quality municipal bonds from across the U.S. With an average maturity of 13 days, the fund remains stable and responsive to interest rate changes. VMSXX manages $19 billion in total assets, making it a popular low-risk option for people looking for steady, tax-efficient returns and easy access to their money.

Frequently Asked Questions 

Q.1. What is a money market fund?
A.1. A money market fund is a type of low-risk investment that puts your money into short-term, high-quality debt, like U.S. government bonds.

Q.2. Are money market funds safe?
A.2. They’re considered very safe, but they’re not FDIC-insured like a bank account. However, they invest in low-risk assets and are designed to protect your principal.

Q.3. Can I lose money in a money market fund?
A.3.  While rare, it is possible. If the fund’s investments lose value or a bond issuer defaults, the fund could “break the buck" — fall below $1 per share. This has only happened a few times in history.

Q.4. How do I earn money from a money market fund?
A.4. You earn income through interest, often called a “7-day SEC yield.” You can choose to take the income as cash or reinvest it into the fund.

Q.5. Why choose Vanguard for money market funds?
A.5. Vanguard is known for its low fees (expense ratios) and solid track record. Lower fees mean you keep more of what you earn.

Conclusion

Money market funds are a smart option for investors who want a low-risk, steady return without locking their money away. They offer better returns than savings accounts and provide quick access to your funds. With Vanguard’s low fees and strong reputation, these funds can be a great way to manage your cash during uncertain times.

Just remember: while money market funds are safer than stocks, they still come with some risks. Keep an eye on interest rates and inflation, and consider your goals before investing. Whether you're a new investor or someone looking to protect your portfolio, money market funds are worth considering.

Important Note: Please Read Before You Invest We're just sharing some helpful tips, but remember, investing comes with risks. We can't promise that these tips will always work or that you'll make money. Everyone's financial situation is different, so it's smart to do your research or talk to a financial advisor before you invest. Using these tips, you agree that you're responsible for your investment decisions and results.