Is Your Money Market in Danger of Losing Money?

Are money market funds in danger of losing money due to short-term investments in bonds that hold sub-prime mortgages? The problems with sub-prime mortgages are apparently affecting money market accounts. Depending on what type of money market you have, there could be trouble brewing.

One money market account just recently offered its shareholders a way out of their account by accepting $0.96 for every $1 deposited.

This account was an enhanced money market account, which is an account designed to give a higher return than a normal money market account. In doing this, they take additional risk. Those funds will end up taking the loss. They can also be categorized as ultra-short bond funds, which are intended to be safer investments. However, one of the ultra-short bond funds year to date has had over an -8% loss.

What about money market accounts that have exposure to the risk from sub-prime loans? Of course, this isn’t something that you want to bank on. However, most major money market funds will step in and replenish their money market accounts with money to make up for any losses. A mutual fund or brokerage company that is a big player in the money market arena cannot afford the negative publicity that results from losses in accounts that are assumed to be relatively safe. People count on money market accounts to be safe. At the same time, you have to realize that they do take risk.

Keep in mind that money market accounts are not FDIC insured. Money on deposit in these accounts is insured by the FDIC for up to $ 100,000.

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