Understanding Money Market Yields: How They Calculate and Pay Interest
When managing cash in a prime money market fund like the Schwab Value Advantage Money Fund (SWVXX), two of the most common investor questions center on timing: When is daily interest added? and What happens to my earnings if I cash out early?
Understanding how daily accrual works ensures you never leave yield on the table—even when moving money mid-month.
The Mechanics: Daily Accrual vs. Monthly Payout
Money market funds operate on a strict split-ledger system: yield accumulates every single day behind the scenes, but it is only distributed once a month.
- Daily Accrual: At the close of each business day, Schwab calculates interest based on your ending balance and the fund’s current 7-day yield. This calculation uses an actual/365-day simple interest formula. Weekend and holiday interest accrues on the preceding business day’s balance.
- Monthly Distribution: On the last business day of the month, your total accumulated earnings for that month are tallied and credited to your account. You can choose to receive this payout as settled cash or have it automatically reinvested into additional SWVXX shares at the standard $1.00 net asset value (NAV).
What Happens If You Sell Mid-Month?
A common myth among retail investors is that selling fund shares before the monthly distribution date forfeits accrued earnings.
With money markets, you keep every cent you earn.
When you redeem shares mid-month, your principal balance drops, but your “earned-but-unpaid” interest ledger remains active.
- Immediate Principal Settlement: The principal amount you redeem liquidates immediately into your settlement account.
- Delayed Yield Distribution: The interest accrued up to the date of sale stays in your account’s pending dividend balance. It will automatically post as cash on the final business day of the month.
Example
To see how this works in practice, consider an investor placing $10,000 into SWVXX for 15 days at a hypothetical annual yield of 4.00%.
When rounded to the nearest cent at month-end, $16.44 in interest will be credited to your account—even though you sold the underlying shares two weeks prior.