Money To Live

October 6, 2008

Reader Question: Money Markets

Filed under: banks,savings — by moneytolive @ 5:00 am
Tags: ,

A reader wrote in concerned about having money in a non-FDIC money market.

Money markets at brokerage firms may not (and probably are not) FDIC insured. Historically, only two money market funds have lost money.  In each case, account holders lost small amounts of money (3 cents on the dollar in one case).

If you have money in a non-FDIC insured money market fund and it worries you, go ahead and move it to an insured savings account. I believe you should handle your money in a way that you are comfortable with.

In the past year or two, I opened a Vanguard Money Market fund for my “house, car, or other large expense” account. I decided to go with the Vanguard Money Market instead of opening CDs or chasing rates in FDIC-insured accounts because (1) the rates were good historically and (2) the money is accessible with a short delay. It would take about a week to get cash out, but there is no penalty for an early withdrawal.

Also, I thought that if a Vanguard money market loses money, things must be pretty bad in the world. I am surprised that a money market fund has lost money because I do not yet grasp what is happening in the economy.

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