Peak Money Market Fund Yields in 1981-82

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Electron
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Peak Money Market Fund Yields in 1981-82

Post by Electron » Tue Aug 05, 2014 7:00 pm

I'm wondering if anyone remembers the highest yields seen in Money Market funds in 1981-82.

In looking through some old records I see that my first IRA investment in early 1982 was an 18 month CD paying 16.5%. That's hard to believe today. I think rates were even higher in 1981.
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Re: Peak Money Market Fund Yields in 1981-82

Post by dodecahedron » Tue Aug 05, 2014 7:18 pm

I definitely remember having a Merrill Lynch RATS (Ready Assets) money market fund back in those days and watching the daily listings in the WSJ. I think there were days it was paying over 19%. It was vaguely surreal. Of course, after taxes (top rate was 70% in those days) and inflation, their real after-tax return was dreadful.

Also remember 30-year mortgages being quoted at 18% APR plus one point origination fees. Variables were at temporary "teaser rates" of 14%. Sounds horrendous, but it was a great deal in retrospect, because those high rates depressed housing prices. You could buy a house for cheap and then refinance within a few years to far more reasonable rates.

And anyone else remember All Savers Certificates? They were special CDs (federally insured) that paid 70% of the one-year Tbill rate, which worked out to be about 12% or so, AND they were free of federal taxes.

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Re: Peak Money Market Fund Yields in 1981-82

Post by ResearchMed » Tue Aug 05, 2014 7:27 pm

dodecahedron wrote:I definitely remember having a Merrill Lynch RATS (Ready Assets) money market fund back in those days and watching the daily listings in the WSJ. I think there were days it was paying over 19%. It was vaguely surreal. Of course, after taxes (top rate was 70% in those days) and inflation, their real after-tax return was dreadful.

Also remember 30-year mortgages being quoted at 18% APR plus one point origination fees. Variables were at temporary "teaser rates" of 14%. Sounds horrendous, but it was a great deal in retrospect, because those high rates depressed housing prices. You could buy a house for cheap and then refinance within a few years to far more reasonable rates.

And anyone else remember All Savers Certificates? They were special CDs (federally insured) that paid 70% of the one-year Tbill rate, which worked out to be about 12% or so, AND they were free of federal taxes.
I remember the Merrill Lynch Asset "checking" account equivalent, with about 18.5% interest back then.
And my first mortgage then, for something like 17%. About a year or two later, I refinanced for about 13.5%, and then not long after, for about 10%.
The house was priced (low) accordingly for the ultra-high mortgage rates.
It was my first "home" and also a phenomenal investment (3-family that I later converted to condos - but before selling them at quite a profit, the rent on the other two allowed me to live almost rent-free).

I guess I didn't know any better that it was "too high" a mortgage interest rate :wink:

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Re: Peak Money Market Fund Yields in 1981-82

Post by peppers » Tue Aug 05, 2014 7:28 pm

IIRC, I remember having a IDS Cash Management account and there was a 7 day yield of 20%. The savings and loans would also give away some free kitchen hardware if you opened up a new 6 month CD.
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Re: Peak Money Market Fund Yields in 1981-82

Post by John3754 » Tue Aug 05, 2014 7:29 pm

Electron wrote:In looking through some old records I see that my first IRA investment in early 1982 was an 18 month CD paying 16.5%. That's hard to believe today.
Perhaps but...what was the real yield on a 16.5% CD in 1982?

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Re: Peak Money Market Fund Yields in 1981-82

Post by joe8d » Tue Aug 05, 2014 7:29 pm

I definitely remember having a Merrill Lynch RATS (Ready Assets) money market fund back in those days and watching the daily listings in the WSJ. I think there were days it was paying over 19%.
Yes,my first MMFwas ML Ready Assets and it was paying over 19%.Daily Listings of MMF rates in the newspapers was common place.
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Re: Peak Money Market Fund Yields in 1981-82

Post by Lake Living » Tue Aug 05, 2014 7:51 pm

I had the Kemper Money Market fund. I highest I recall it paying was about 17.5%. Of course inflation was around 13% during those years. I looked it up, prime rate in 1980 was 21.5%....all time high.

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Re: Peak Money Market Fund Yields in 1981-82

Post by LadyGeek » Tue Aug 05, 2014 8:49 pm

This thread is now in the Investing - Theory, News & General forum (historical prices).
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Re: Peak Money Market Fund Yields in 1981-82

Post by Electron » Tue Aug 05, 2014 10:53 pm

Thanks all for the replies. I just checked the daily 3 month T-Bill rates as shown below.

http://research.stlouisfed.org/fred2/series/DTB3

The 3 month T-Bill in the secondary market hit 17.14% in late 1980 and it was 17.01% in May 1981. I also remember the very high mortgage rates and second and even third trust deeds were common in some areas. As already mentioned the Prime Rate was also at extremely high levels.

The 3 month T-Bill rates show a very interesting story at the start of the great 1982 bull market. Notice how sharply the rates came down from July through August 1982. The market bottom was on August 12, 1982 with the Dow Jones Industrial average at 777.

Code: Select all

1982-07-14  12.00
1982-07-15  11.64
1982-07-16  11.21
1982-07-19  11.06
1982-07-20  10.66
1982-07-21  10.75
1982-07-22  10.41
1982-07-23  10.33
1982-07-26  10.45
1982-07-27  10.66
1982-07-28  10.72
1982-07-29  10.53
1982-07-30  10.17
1982-08-02   9.36
1982-08-03   9.80
1982-08-04   9.73
1982-08-05   9.80
1982-08-06  10.31
1982-08-09   9.86
1982-08-10  10.02
1982-08-11   9.97
1982-08-12   9.38
1982-08-13   9.25
1982-08-16   8.67
1982-08-17   8.05
1982-08-18   8.06
1982-08-19   7.52
1982-08-20   7.08
1982-08-23   7.50
1982-08-24   7.61
1982-08-25   7.42
1982-08-26   7.14
1982-08-27   7.84
1982-08-30   8.16
1982-08-31   8.42
1982-09-01   8.42
1982-09-02   8.36
1982-09-03   8.17
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Re: Peak Money Market Fund Yields in 1981-82

Post by Dandy » Wed Aug 06, 2014 11:03 am

During that time I convince my in laws to take loans at 3%? from their whole life policies and "invest" in CDs. A true free lunch at the time. Interest they were paying was low and fixed and the CDs were higher and government guaranteed. If CD rates dropped - just repay the loan.I reminded them that the CDs were not for spending but part of their insurance.

The one thing I forgot to tell them was to put some of it in longer term CDs - I think they bought 1 yr CDs and only got a fraction of the benefit. :oops:

That is when Insurance companies issued new whole life with variable interest.

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Re: Peak Money Market Fund Yields in 1981-82

Post by sdrone » Wed Aug 06, 2014 11:31 am

My dad was a farmer; he always did almost everything in cash. Times were tough at that time, and he was making extra money in the winter working for some type of accounting service doing work on farm loans. He was not happy about it, as you can imagine, but times were pretty tough. IIRC there were a couple of drought years around this time.

He often worked his financial journals on Saturday mornings. I remember going to the main bank in town after he'd updated his financials and buying several CDs at something like 15%, I think. I remember understanding that that was a good investment, but I didn't understand what was going on in the greater economy at the time and how bad it was for farmers.

A few years ago (so something like 30 years later) my father in law died. We learned that he was a saver, and that he was also a pretty smart investor. He had several municipal bonds that he had bought at that time; we never got 100% of the details due to a lot of family drama. Apparently the father in law had bought municipal bonds, I believe associated with the Cleveland airport, that yielded something huge like 18%.

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Re: Peak Money Market Fund Yields in 1981-82

Post by Crow Hunter » Wed Aug 06, 2014 12:31 pm

Dandy wrote:During that time I convince my in laws to take loans at 3%? from their whole life policies and "invest" in CDs. A true free lunch at the time. Interest they were paying was low and fixed and the CDs were higher and government guaranteed. If CD rates dropped - just repay the loan.I reminded them that the CDs were not for spending but part of their insurance.

The one thing I forgot to tell them was to put some of it in longer term CDs - I think they bought 1 yr CDs and only got a fraction of the benefit. :oops:

That is when Insurance companies issued new whole life with variable interest.
A friend of mine that I used to work with did something similar. He said that he was in college during that time and he would take out student loans and put as much as he could into CDs at the bank.

I don't remember that much about that time period, I was 7-8 at the time so I don't remember much other than my parents paid of their house that they built in 1971 for I think $13,000 and they were very happy about it around that time period because my parents were getting really big raises at the time.

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Re: Peak Money Market Fund Yields in 1981-82

Post by jimb_fromATL » Wed Aug 06, 2014 1:12 pm

In the early and mid 80's my company (AT&T) was having trouble getting people to accept promotions to move from Atlanta regional headquarters and other areas where housing was relatively cheap to their national headquarters in New Jersey because of the higher cost of housing in the NorthEast and because of the high costs of mortgages ... which were in the neighborhood of 16-17% at the time. (At that time, my entire paycheck after a promotion would not have qualified me to buy and pay for a home in central NJ that was comparable to the one we had in the Atlanta area.)

One incentive they offered to cut down on the risk on mortgages was to offer a guarantee for folks who relocated and bought new homes with ARMs (Adjustable Rate Mortgages) in order to have somewhat lower initial rates. They offered to guarantee by contract that if the ARM mortgage rate went above 21%, they would pay the difference in interest until the rate came back down to that amount.

Here are some gee-whiz figures gathered from a Freddie Mac site a year or so ago:

Code: Select all

          .	  mortgage	 inflation	   S&P 500	        CD
      year	     rates	    rate	       APY	          Rates
      2013	     3.98%	     1.48%	    32.00%	     0.03%
      2012	     3.66%	     2.10%	    15.88%	     0.29%
      2011	     4.45%	     3.20%	     2.05%	     0.31%
      2010	     4.69%	     1.60%	    14.87%	     1.61%
      2009	     5.04%	     -.40%	    27.11%	     3.95%
      2008	     6.03%	     3.80%	   -37.22%	     5.31%
      2007	     6.34%	     2.80%	     5.46%	     4.58%
      2006	     6.41%	     3.20%	    15.74%	     2.67%
      2005	     5.87%	     3.40%	     4.79%	     1.23%
      2004	     5.84%	     2.70%	    10.82%	     1.37%
      2003	     5.83%	     2.30%	    28.72%	     2.22%
      2002	     6.54%	     1.60%	   -22.27%	     5.26%
      2001	     6.97%	     2.80%	   -11.98%	     6.06%
      2000	     8.05%	     3.40%	    -9.11%	     5.22%
      1999	     7.44%	     2.20%	    21.11%	     5.60%
      1998	     6.94%	     1.60%	    28.73%	     5.51%
      1997	      7.6%	     2.30%	    33.67%	     5.54%
      1996	     7.81%	     3.00%	    23.06%	     5.71%
      1995	     7.93%	     2.80%	    38.02%	     3.77%
      1994	     8.38%	     2.60%	     1.19%	     3.28%
      1993	     7.31%	     3.00%	    10.17%	     4.47%
      1992	     8.39%	     3.00%	     7.60%	     6.96%
      1991	     9.25%	     4.20%	    30.95%	     8.48%
      1990	    10.13%	     5.40%	    -3.42%	     8.83%
      1989	    10.32%	     4.80%	    32.00%	     7.26%
      1988	    10.34%	     4.10%	    16.64%	     6.35%
      1987	    10.21%	     3.60%	     5.69%	     7.33%
      1986	    10.19%	     1.90%	    19.06%	     9.17%
      1985	    12.43%	     3.60%	    32.24%	     9.90%
      1984	    13.88%	     4.30%	     5.96%	     9.83%
      1983	    13.24%	     3.20%	    23.13%	    14.29%
      1982	    16.04%	     6.20%	    21.22%	    14.90%
      1981	    16.63%	    10.30%	    -5.33%	    12.53%
      1980	    13.74%	    13.50%	    32.76%	     9.86%
      1979	     11.2%	    11.30%	    18.69%	     6.88%
      1978	     9.64%	     7.60%	     6.41%	     5.24%
      1977	     8.85%	     6.50%	    -7.78%	     5.81%
      1976	     8.87%	     5.80%	    24.20%	     8.31%
      1975	     9.05%	     9.10%	    38.46%	     9.68%
      1974	     9.19%	    11.00%	   -26.95%	     6.48%
      1973	     8.04%	     6.20%	   -15.03%	     4.73%
      1972	     7.38%	     3.20%	    19.15%	     5.87%


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Re: Peak Money Market Fund Yields in 1981-82

Post by malloc » Wed Aug 06, 2014 1:34 pm

When I first got married & bought a house I knew nothing about investments.
At the local gym, I met an older neighbor (retired) sitting in the locker room.
He was half talking to me and half to himself.
He was distraught that his investments were earning less than inflation.
He asked me if I knew any way to not lose money.

It was very sad - and I did not know how to help him.

I was glad I had a job, but still it was scary.

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Re: Peak Money Market Fund Yields in 1981-82

Post by dodecahedron » Wed Aug 06, 2014 2:21 pm

I have immense respect for my mother-in-law, who was widowed in fragile health with two very young children in the mid 1960s, shortly before the great inflation began. Back then, SS and disabled veteran's widow benefits were not indexed to inflation, banking regs limited savings account rates to levels way below inflation, there were no MMF's, financial regulations required very high minimum broker fees so there no discount brokerages, no index funds, and she had no specialized financial education to help her manage the proceeds of a small life insurance policy. No Internet and no Bogleheads. My husband, the older child, still in elementary school but with a fondness for numbers previously based on studying baseball statistics, became her sounding board and confidante as she talked things through. She did a pretty darned amazing job and my husband learned a ton.

Sorry that this is a bit off the original topic but I often think back to those crazy times with double digit rates on fixed income. Real after tax returns on short term fixed income investments were far more negative than they are today. I hope we can avoid a return to that world.

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Re: Peak Money Market Fund Yields in 1981-82

Post by MathWizard » Wed Aug 06, 2014 2:26 pm

I was newly married then and having to borrow money at even higher rates then.

Now that I have money to invest, earnings on short term safe investments are paltry.
My wife jokes that we just timed it all wrong.

Of course, when inflation is taken into account, the numbers do look at lot better.

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Re: Peak Money Market Fund Yields in 1981-82

Post by dodecahedron » Wed Aug 06, 2014 2:57 pm

MathWizard wrote:I was newly married then and having to borrow money at even higher rates then.

Now that I have money to invest, earnings on short term safe investments are paltry.
My wife jokes that we just timed it all wrong.

Of course, when inflation is taken into account, the numbers do look at lot better.
And even better when you take tax rates as well as inflation into account! Top marginal tax rate was 70% back then and even middle income folks could easily have found themselves paying higher marginal rates than the highest income taxpayers currently pay. The word "peak" in the title of this thread is something of a misnomer, since nominal pretax yields were not really relevant to anyone's financial status.

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Re: Peak Money Market Fund Yields in 1981-82

Post by Electron » Wed Aug 06, 2014 3:49 pm

The 16.5% CD that I mentioned looked like a good investment in 1982, but imagine if I had invested in the Vanguard Index 500 fund instead. It was available starting in 1976 with a lot of skeptics.

The dividend yield on the S&P 500 index was in the area of 5% in 1982. If the fund shares had been held into 2014, the dividend increases would have been very substantial. Add to that the capital appreciation and one would have had a very rewarding investment.

The Kemper Money Market fund was mentioned and I recall holding that fund as well along with the Value Line Cash Fund. Kemper took somewhat more risk than the other money market funds and provided one of the highest yields available. With the 3 month T-Bill hitting 17% it's possible that money funds were paying even more.
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Re: Peak Money Market Fund Yields in 1981-82

Post by Abe » Wed Aug 06, 2014 3:52 pm

I think interest rates peaked out in 1981 or 1982. After that, they started down and have been going down ever since. I remember in about 1993 I was getting 7% on 1 year CD's. For about 3 or 4 years after that, I managed to renew them at 7% even though rates were creeping down. In about 1997 when my CD's matured, I could not get 7% anywhere. I was about to give up, but I decided to try one more bank. When I called, they quoted something like five or six percent. I was about to hang up when the lady said the only way we could pay 7% would be for a 3 year CD.
I had around $650,000 and I invested it for the 3 years. I can remember calculating that I would have around $800,000 at the end of 3 years. I think the lady who quoted me the 7% make a mistake because the bank tried to get out of it but it was too late.
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Re: Peak Money Market Fund Yields in 1981-82

Post by bhsince87 » Wed Aug 06, 2014 4:19 pm

I never would have expected that CDs beat inflation in 30 out of those 42 years!




jimb_fromATL wrote:
Here are some gee-whiz figures gathered from a Freddie Mac site a year or so ago:

Code: Select all

          .	  mortgage	 inflation	   S&P 500	        CD
      year	     rates	    rate	       APY	          Rates
      2013	     3.98%	     1.48%	    32.00%	     0.03%
      2012	     3.66%	     2.10%	    15.88%	     0.29%
      2011	     4.45%	     3.20%	     2.05%	     0.31%
      2010	     4.69%	     1.60%	    14.87%	     1.61%
      2009	     5.04%	     -.40%	    27.11%	     3.95%
      2008	     6.03%	     3.80%	   -37.22%	     5.31%
      2007	     6.34%	     2.80%	     5.46%	     4.58%
      2006	     6.41%	     3.20%	    15.74%	     2.67%
      2005	     5.87%	     3.40%	     4.79%	     1.23%
      2004	     5.84%	     2.70%	    10.82%	     1.37%
      2003	     5.83%	     2.30%	    28.72%	     2.22%
      2002	     6.54%	     1.60%	   -22.27%	     5.26%
      2001	     6.97%	     2.80%	   -11.98%	     6.06%
      2000	     8.05%	     3.40%	    -9.11%	     5.22%
      1999	     7.44%	     2.20%	    21.11%	     5.60%
      1998	     6.94%	     1.60%	    28.73%	     5.51%
      1997	      7.6%	     2.30%	    33.67%	     5.54%
      1996	     7.81%	     3.00%	    23.06%	     5.71%
      1995	     7.93%	     2.80%	    38.02%	     3.77%
      1994	     8.38%	     2.60%	     1.19%	     3.28%
      1993	     7.31%	     3.00%	    10.17%	     4.47%
      1992	     8.39%	     3.00%	     7.60%	     6.96%
      1991	     9.25%	     4.20%	    30.95%	     8.48%
      1990	    10.13%	     5.40%	    -3.42%	     8.83%
      1989	    10.32%	     4.80%	    32.00%	     7.26%
      1988	    10.34%	     4.10%	    16.64%	     6.35%
      1987	    10.21%	     3.60%	     5.69%	     7.33%
      1986	    10.19%	     1.90%	    19.06%	     9.17%
      1985	    12.43%	     3.60%	    32.24%	     9.90%
      1984	    13.88%	     4.30%	     5.96%	     9.83%
      1983	    13.24%	     3.20%	    23.13%	    14.29%
      1982	    16.04%	     6.20%	    21.22%	    14.90%
      1981	    16.63%	    10.30%	    -5.33%	    12.53%
      1980	    13.74%	    13.50%	    32.76%	     9.86%
      1979	     11.2%	    11.30%	    18.69%	     6.88%
      1978	     9.64%	     7.60%	     6.41%	     5.24%
      1977	     8.85%	     6.50%	    -7.78%	     5.81%
      1976	     8.87%	     5.80%	    24.20%	     8.31%
      1975	     9.05%	     9.10%	    38.46%	     9.68%
      1974	     9.19%	    11.00%	   -26.95%	     6.48%
      1973	     8.04%	     6.20%	   -15.03%	     4.73%
      1972	     7.38%	     3.20%	    19.15%	     5.87%

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Re: Peak Money Market Fund Yields in 1981-82

Post by Wagnerjb » Wed Aug 06, 2014 4:37 pm

dodecahedron wrote: And even better when you take tax rates as well as inflation into account! Top marginal tax rate was 70% back then and even middle income folks could easily have found themselves paying higher marginal rates than the highest income taxpayers currently pay. The word "peak" in the title of this thread is something of a misnomer, since nominal pretax yields were not really relevant to anyone's financial status.
Exactly! An awful lot of people overlook the tax issue with high rates. Let' say that you earn a 2% "real" return before taxes. If you earn a 3% rate of interest when inflation is 1%, your after-tax return (at 33% tax rate) is 2%....leaving you ahead of inflation after taxes. Let's go back to the "good old days" of 12% interest and 10% inflation. Well, your 12% interest is chopped down to 8% after taxes, which leaves you well under water when dealing with 10% inflation.

Count me as one who doesn't miss the "good old days". :D

Best wishes.
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Re: Peak Money Market Fund Yields in 1981-82

Post by Beliavsky » Wed Aug 06, 2014 5:13 pm

In the 1980s, some banks and thrifts would advertise their CD rates on big, lighted signs. My dear but rather inertial parents kept their saving in a savings account earning 5%. As a 10-year-old kid, I saw the signs and asked my parents why they didn't invest in a 5-year CD at something like 15%. That was one of their best investments ever.

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Re: Peak Money Market Fund Yields in 1981-82

Post by nisiprius » Wed Aug 06, 2014 8:48 pm

dodecahedron wrote:...I definitely remember having a Merrill Lynch RATS (Ready Assets) money market fund...
Ready Assets! I'd forgotten that name. Yes, my first money market fund was Merrill Lynch Ready Assets.
Also remember 30-year mortgages being quoted at 18% APR plus one point origination fees.
What made that interesting was that the credit card companies hadn't yet gotten the states to abolish their usury laws, and in many states credit card interest rates were still capped, often at 12%. So the result was that the interest rate on mortgages was higher than on credit cards. Not that you could charge a house on a credit card or anything, but it did underline the strangeness of it all.
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Re: Peak Money Market Fund Yields in 1981-82

Post by Valuethinker » Thu Aug 07, 2014 7:15 am

Beliavsky wrote:In the 1980s, some banks and thrifts would advertise their CD rates on big, lighted signs. My dear but rather inertial parents kept their saving in a savings account earning 5%. As a 10-year-old kid, I saw the signs and asked my parents why they didn't invest in a 5-year CD at something like 15%. That was one of their best investments ever.
Partly the world which they had grown up in, which was based on trust and relationships. My mother, in her 80s, can still get the bank tellers to sort out problems because she knows their first names, and has banked at that branch since 1960.

Also, rationally, because when they grew up they all had family tales of money lost in bank failures. The 1930s several banks were closing every day. So they learned to trust big brand names.

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BolderBoy
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Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Peak Money Market Fund Yields in 1981-82

Post by BolderBoy » Thu Aug 07, 2014 11:37 am

Electron wrote:I'm wondering if anyone remembers the highest yields seen in Money Market funds in 1981-82.
I had the Prime Money Market Fund with T Rowe Price in 1981 and it was yielding 18% for a time.

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