The Average Annual Interest Earned in Mutual Funds

Several different types of mutual funds have either an annual interest rate or an annual percentage yield, both of them calculated daily. You can buy money market funds that are either taxable or tax exempt. You can also buy high-yield bond funds with annual returns of nearly 20 percent and short-term government bond funds, both taxable and nontaxable, with yields close to zero. Long-term government bond funds have negative returns in 2013. In all cases, the interest rates and yields available are commensurate with associated risk.

Money Market Mutual Funds

Money market funds come in two flavors. The first is the money market account, or MMA, offered by a financial institution insured by the Federal Deposit Insurance Corporation and more formally known as a money market deposit account. The second is the money market mutual fund, like many investors have in a brokerage account. Both fund types are subject to federal income tax. On Nov. 20, 2013, 10 money market mutual funds listed by Bankrate averaged a little more than 0.5 percent annual interest. The three funds with the highest interest rates averaged a little more than 1 percent, and the highest fund returned 3.65 percent annually.

Nontaxable Money Market Mutual Funds

You can also buy tax-exempt money market mutual funds. While taxable money market mutual funds invest in Treasury bills with maturities of 90 days or less, tax-exempt money market mutual funds normally invest in municipal money market securities that are exempt from federal taxation and have maturities of two years or less. On Nov. 20, 2013, 10 tax-exempt money market mutual funds listed by Bankrate averaged a little less than 0.5 percent annual interest. The three funds with the highest interest rates averaged a little less than 1 percent, and the highest fund returned about 1 percent annually.

High Yield Bond Funds

Bond funds -- mutual funds investing exclusively in government or corporate bonds -- have a wider range of returns than money market funds. The returns depend upon the average maturity of the bonds held in the fund and also on the relative risk of the fund's holdings. At the upper end of return rates are high-yield bond funds that invest in lower-quality corporate bonds, many of them unrated by any of the major bond-rating agencies, such as Standard & Poor's, and often referred to as "junk bonds." Each of the underlying bonds in the fund has its own interest rate, but the fund's yield may be higher or lower than the weighted average of the bonds' interest rates. Bonds in high-yield funds, for example, usually trade at a discount to the offering price, with yields therefore higher than nominal interest rates. The average one-year yield for 10 high-yield bond funds in a "U.S. News and World Report" list of recommended funds is a little more than 10 percent. The highest-yielding fund had a one-year performance average of 16.45 percent.

Government Bond Funds

Funds holding long-term Treasuries are more volatile than those holding short-term Treasuries. As of Nov. 20, 2013, one long-term government bond fund lost nearly 11 percent over the preceding 12 months, while a short-term government bond fund was essentially flat over the same period. Tax-exempt bond funds holding municipal bonds are also available with performances ranging from 0.05 percent to a little more than 3 percent.

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About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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