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Dear Dr. Don,
I have read the information on money market funds versus money market mutual funds. Did I read where the U.S. government has offered some protection to these two different investments? I thought I read something about it but can't find the reference.
-- Ed Elucidate
Dear Ed,
Money market funds and money market mutual funds are two ways of describing the same form of investment. It's more common to make a distinction between a money market account and a money market mutual fund, or MMMF.
Money market accounts are a bank product and, when held in an FDIC-insured account, are insured against loss of principal by the FDIC up to the limits of that insurance.
The insurance limits temporarily (through Dec. 31, 2009) have been bumped to $250,000, from $100,000. The FDIC Web site explains the change in greater detail in the article "FDIC deposit insurance coverage."
Money market mutual funds are not
insured investments, but the U.S. government is
temporarily allowing fund providers to buy insurance.
The government will guarantee that investors in
an insured money market mutual fund won't lose
any money for balances invested as of Sept. 19,
2008. The insurance program's initial term was
for three months, but the government recently
extended coverage out to April 30, 2009. The government
has the option of further extending the insurance
to Sept. 19, 2009 if it so chooses.
The Bankrate feature "Money funds sign up for guarantee" explains the insurance program.
The government instituted this insurance so MMMF investors would feel secure in staying invested in their insured funds -- thus eliminating one reason to redeem funds and reinvest elsewhere.
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