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?

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.

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Senior Reporter, Kiplinger's Personal Finance