Money Market Funds Take Spotlight

Money market funds can lose money. Most people consider them to be completely safe, but it is possible to lose money in a money market fund. Generally, they say something like "we strive to keep the Net Asset Value (NAV) at $1/share, but there is no guarantee...". When a fund's NAV falls below $1, it has "broken the buck".

Today the Treasury announced a program that would help insure money market funds against breaking the buck. The measure is temporary, and not all money market funds will participate in the program. The goal is to keep the public from making a run on money market funds.

Traditional bankers are not happy with the plan. They argue that money market funds are supposed to be riskier investments than their FDIC insured products (such as money market accounts, CDs, savings accounts, etc). Now, they worry that some will assume that money market funds will be seen as "about as safe" as FDIC insured products, and they'll face more competition.

To find out if your fund is affected, contact your fund company. Ask them if it's possible to lose money in their money market fund. If you're not comfortable with the risk, look to FDIC insured products.

Further reading:

• Money Market Accounts vs Money Market Funds
• Reuters: Treasury aims to bolster money market confidence