Cash in money market accounts at record level as rate cuts loom

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The amount of cash held by investors in money market accounts reached a record level in August, even as looming interest rate cuts would lower their returns.

Money market account assets hit $6.24 trillion this month, according to data from the Investment Company Institute as of Aug. 21, despite markets becoming increasingly confident that the Federal Reserve will cut interest rates at its Sept. 17-18 policy meeting.

When the central bank reduces the benchmark federal funds rate, financial institutions are expected to lower the yields on money market accounts that have been above 5% in response to the shift in monetary policy.

Despite those expectations, individual and institutional investors alike have continued to put cash into money market accounts rather than investing in stocks and bonds. About $100 billion in assets flowed into money market accounts in August, according to data analysis firm EPFR.

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Assets in money market accounts hit a record this month, though the Federal Reserve's looming interest rate cuts could cause outflows as rates are lowered. (Angela Weiss/AFP via Getty Images / Getty Images)

The firm's data showed that the latest inflows included institutional investors, while data from the Federal Reserve Bank of St. Louis found that individual investors have more than $4 trillion of funds in money markets.

Investors' dedication to cash could be tested if a weakening economy spurs the Fed into cutting rates sooner or more deeply than expected. 

Futures tied to the Fed's main policy rate show markets pricing in about two percentage