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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