Liz Weston MY TWO CENTS
GET
HIGHER Yields
Is Your
Money
Fund
Safe?
Beat stingy
money-fund
rates by finding
bank CDs or sav-
ings accounts
on Bankrate
.com or Money
Rates.com.
Money funds are
mutual funds.
Money market
accounts come
from banks.
Key: Banks have
FDIC insurance.
Unlike bank accounts,
money market funds
aren’t insured by the federal government. Money
funds almost always are
priced at $1 a share, but
during the 2008 financial
crisis a fund known as the
Reserve Primary Fund
dropped to 97 cents a
They’re pretty safe, just
not perfectly safe.
FROM TOP: ART STREIBER; ADAM VOORHES ( 2) (PROP STYLIST: ROBIN FINLAY)
Today, if a fund
yields much
more than 0.2
percent, it isn’t a
true money fund.
It’s taking risks
the manager isn’t
telling you about.
share. (It had lost money
on securities in the failed
Lehman Brothers invest-
ment bank.) A handful of
other funds would also
have dropped a few pen-
nies per share, but the fund
companies voluntarily
made up the losses, and
Uncle Sam stepped in with
a temporary guarantee
to keep panicky investors
from pulling out.
Risk, No Reward
Why funds fall short
Used to be that money market funds offered higher yields than
banks. That was your reward for taking a little extra risk and forgoing the bank’s federal insurance. These days, though, there’s no
reward for the risk. The assets money funds hold, such as Treasury
bills, yield close to zero. Lots of banks beat that. With a little online
digging, you can squeeze out half a percent or so in a CD or savings
account insured by the FDIC (banks) or the CUNA (credit unions).
Fund managers say their
exposure to wobbly foreign debt is minimal, and
besides, Uncle Sam would
step in again if things got
too bad. Probably.
Still, you don’t want
to invest expecting to be
bailed out. And you’re
certainly not being compensated for the risk:
Money funds are paying as
little as 0.01 percent. (Not
a misprint.) Many banks
offer more, along with a
federal guarantee. And that
is perfectly safe. ;
Liz Weston, author of The 10
Commandments of Money,
blogs at asklizweston.com.
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