Money Funds & FDIC Insurance

Are you worried that your money fund does not have FDIC insurance? The lack of FDIC insurance on a money fund shouldn't trouble you. Mutual fund companies can't fail because they have a dollar invested in securities for every dollar you deposited in their money fund.

By contrast, banks are required to have available just 12 cents for every dollar you hand over to them.

It is possible though that a money market fund's investments may decline slightly in value, which can cause the money fund's share price to fall below a dollar.

A few cases have occurred where money market funds bought some bad investments. However, in each and every case, except one, the parent company running the money fund infused cash into the affected fund, thus enabling it to maintain the $1 per share price.

One money market fund did "break the buck." It didn't take money in from people like you or me but was run by a bunch of small banks for themselves.

The money market fund made some bone-headed investments. The share price of the fund declined by 6 percent, and the fund owners decided to disband the fund; they didn't bail it out, because they would be repaying themselves.

Stick with larger mutual fund companies if you're worried about the lack of FDIC insurance. They have the financial wherewithal and the largest incentive to save a floundering money fund.