March 10, 2015

Money Market Fund Changes Coming

The Securities and Exchange Commission recently passed new rules for money market funds effective in October 2016. “One requirement under the new rules is that the shares of money-market funds that cater to institutional investors and invest in corporate or municipal debt must float in value, like the shares of most other mutual funds. That’s a change from the stable $1-a-share value traditionally maintained by all money-market funds.”  “Another big change is that all money-market funds that invest in corporate or municipal debt will be allowed to charge investors a fee to redeem shares when the funds are under pressure or temporarily block investors from withdrawing cash.”
“Money funds can be divided into three categories according to their investments: prime funds; ‘government’ funds, which invest in U.S. government and federal agency debt; and municipal funds, which invest in the debt of state and local governments.” Source: Prepare for New Money-Fund Rules by Kirsten Grind, The Wall Street Journal, March 8, 2015.
Money funds currently pay an average of 0.03% a year, or $3 on a $10,000 investment, not enough to keep up with inflation. The last time they paid more than 2% was in 2008. Money funds are best used as a temporary holding place for cash, but even then most online savings accounts pay more, but still less than 1%.

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