Advertisement
Saving

Why the Cash in Your Money Fund Is Safe

Fund sponsors are migrating toward strong European financial institutions.

Questions about the safety of money market funds have lingered ever since the Reserve Primary Fund’s share price dropped below $1 in 2008 after writing off debt issued by Lehman Brothers, which filed for bankruptcy. Now investors have another worry: The ten largest prime U.S. money funds -- which may invest in short-term corporate and government debt -- have almost 50% of their total assets invested in European financial institutions, according to Fitch Ratings. Given the jitters over some European countries’ government debt, should you worry that the price of another money fund will drop below $1?

Advertisement - Article continues below

No, says Pete Crane, of Crane Data: “The trillions of dollars in assets and tens of millions of investors in money funds invite government intervention if it becomes necessary.” Fund sponsors themselves are migrating to the largest and strongest European financial institutions, says Viktoria Baklanova, a Fitch Ratings analyst.

Three of the biggest -- JPMorgan, Fidelity and Vanguard -- do not hold securities issued by financial institutions in the most vulnerable countries: Greece, Ireland, Italy, Portugal and Spain. JPMorgan and Fidelity also shortened the maturity of their funds’ portfolios to ensure the funds would have cash for redemptions. Vanguard shifted its foreign exposure to Australia, Canada, and European countries outside the euro zone. The top yielders in our tables have little or no exposure to euro debt.

Advertisement
Advertisement - Article continues below

If minuscule yields (the national average is 0.01%) still make you want to run for cover, FDIC-insured money market deposit accounts may be a better option. The top-ranked accounts yield 1.1%.

Advertisement

Most Popular

Chiropractor Trying to Get Business the Wrong Way – Illegally
careers

Chiropractor Trying to Get Business the Wrong Way – Illegally

A new chiropractor’s fledgling business plan to attract patients may sound reasonable at first look, but it’s actually against the law, and the same p…
June 30, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
13 Luxury Goods That Are Cheaper at Costco
spending

13 Luxury Goods That Are Cheaper at Costco

You could be missing out on huge savings: Costco sells a limited selection of luxury goods at discounted prices, both in-store and online.
June 27, 2020

Recommended

10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020
A Mid-Cap Fund With Big Gains
mutual funds

A Mid-Cap Fund With Big Gains

The fund’s best performers over the past year were software firms.
June 24, 2020