A 7-day yield is the standard performance measure investors use for money market funds.
What does 7-day yield mean?
The name itself can be slightly misleading—a 7-day yield doesn’t represent what you could make in a week. Instead, it adjusts the fund’s average earnings over the previous 7 days to what it would look like as a percentage for a full year (if the rate stayed the same). The reason money market funds use 7-day yields is because the rates don’t usually stay the same for very long.
It’s a backward-looking view of a money market fund’s recent income, “annualized” to be able to compare it to other investments that also use a full-year calculation.
Why it matters for Plynk® users
When you make a deposit to your brokerage account in the Plynk app it's automatically put into a money market fund, so your money has the potential to start earning interest for you even if you don't invest it elsewhere. Check out the fund's 7-day yield here!
You can think of it like a holding place for your cash, where it might do better than it would somewhere else. And when you are ready to make an investment, your money is available to trade without any extra steps!
Why are 7-day yields used for money market funds?
Because the earnings rates of the individual investments that make up money market funds (a type of mutual fund) may change frequently – along with the investments themselves – a fund’s overall earnings can change frequently as well. A 7-day yield gives you a view of average earnings over recent days, and a way to compare different funds.
So, if the 7-day yield is 4.5% when you put your money into a fund, that doesn’t mean you’ll earn 4.5% after a year since the rate is likely to go up or down. What you earn in the future depends on the fund’s future investments and their earning rates over the time you hold your shares.
7-day yield vs. APY
APY (annual percentage yield) is a similar term frequently used for the interest bank accounts might make over 1 year. It estimates the percentage an account would earn in a year with compounding interest.
On the other hand, 7-day yield does not take compounding (reinvesting your earnings) into account. To see that calculation for a money market fund, look for the “compound effective” yield.
Read more: How to make your money work for you with compound growth
How is a 7-day yield calculated?
To ensure consistency, the SEC carefully defines how a 7-day yield is calculated.
The formula involves taking the value of a share including earnings at the end of a 7-day period (X), subtracting the value of the share at the beginning of the period (Y) as well as shareholder fees and fund operating expenses (Z), dividing the resulting amount by the value of the share at the beginning (Y again), and then multiplying that number by 52.14 (which is 365 ÷ 7, the exact number of weeks per year).
It looks like this: ([X – Y – Z] ÷ Y) × 52.14
Next steps to consider
Make a deposit or set up recurring deposits: Your money can grow with the Plynk app just by sitting in your brokerage account! Recurring deposits let you put aside a small portion of your monthly budget (whatever you’re comfortable with) without having to think about it.
Read more: How to set up recurring deposits
Learn more about money market funds: Here’s how you could earn more on your cash (without buying stocks)
