Program Guaranteeing Money Market Mutual Funds Comes to an End

Investors who have relied on the security of a guaranteed money market mutual fund may be disappointed to learn that their investments are no longer government-backed. On Friday, September 18, 2009, the Obama Administration put an end to a program that was to guarantee as much as $3 trillion in money market mutual funds. The program ended on schedule.

At the height of the financial crisis in September 2008, a large money market mutual fund “broke the buck,” which means the value of its shares dropped below $1 for each investor dollar that was put in. Then investors saw major losses when the Primary Reserve Fund said that $785 billion that it invested in Lehman Brothers (which went bankrupt in the summer of 2008) became worthless.


Money market mutual funds are popular financial management tools on Wall Street because they are viewed as safe (funds typically invest in secure debts like short-term commercial bonds and Treasury Bills) and easily accessible with better returns than traditional savings accounts. They are different from money market accounts, which are more like high-yield savings accounts and are found in banks and credit unions.

While $3.5 trillion is normally held in money market mutual funds, with the news that the guarantee program would be ending, that figure dropped by $62 billion a few weeks ago. Now that funds have lost their “insurance policy” per se, investors are expected to begin moving their money to the “sidelines” or to even safer options like CDs, which are still FDIC insured for up to $250,000 until the end of the year.

Do you currently have money market mutual funds as a part of your investment strategy? If so, how has the loss of the guarantee affected your decision to stick with them?