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Should you be investing in money market funds?

October 3, 2008 by  

Money market funds may present an opportunityInvestors are continuing to withdraw their cash from money market funds, despite a promise by the Treasury Department that these funds would be temporarily insured.

More than $209 billion has been moved out of these accounts since September 9th, according to iMoneynet.com managing editor Connie Bugbee.

Investors began fearing for the safety of their wealth in the middle of September, when the Reserve Funds Primary Fund announced that it would not be returning people’s full deposits. It had been stung by its involvement with failed investment bank Lehman Brothers.

Money market accounts do not typically have FDIC insurance, but the Treasury offered temporary security to funds – for a fee – in order to help encourage the market.

Fortune magazine writer Eugenia Levinson has suggested that current conditions provide "a unique opportunity" for investors to purchase tax-exempt money market funds.

Due to a "flood of inventory" caused when fund managers began to sell, firms have raised yields on these funds to appeal to buyers, Levinson writes.

She says that tax-exempt money market funds now offer the highest average seven-day annualized yield since 1985, at 5 percent.
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