For the last several years, ultra-short bond funds have served as a higher-yielding alternative to money-market mutual funds, but the gap...

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For the last several years, ultra-short bond funds have served as a higher-yielding alternative to money-market mutual funds, but the gap in returns has rapidly been closing.

With taxable money funds recently offering yields averaging about 3.4 percent, according to the Money Fund Report, savers and investors who want to keep some liquid cash are enjoying better returns than they have seen in a long time. The average now is the highest it has been since July 2001, when it stood at 3.5 percent.

Short- and ultra-short bond funds are still yielding a little more, but their advantage as a place to invest cash has definitely narrowed from the days when they delivered twice the returns of money-market funds, as they did from 2002 to 2004.

A recent glance at Fidelity’s offerings shows the company’s cash reserve fund (FDRXX) yielded 3.70 percent, while Fidelity Ultra-Short Bond (FUSFX) yielded 4.02 percent and Fidelity Short-Term Bond (FSHBX) delivered 4.29 percent.

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Money-market funds hold great appeal because they offer increasingly attractive yields with little to no risk to principal. That said, if you don’t plan to touch your cash for at least a couple years, or if you need a place to stash an emergency fund that you hope never to tap, ultra-short funds still make sense.