I want to keep you all up with the latest action in Washington regarding protecting your savings. I taped a recent appearance on The Oprah Winfrey Show
on the morning of Thursday, September 18, 2008, right in the midst of much market turmoil. On the show, I told you all that money market funds you buy through brokerages and mutual fund companies are not insured the same as money market accounts that you buy at an FDIC-insured bank.
The show did not air until Tuesday, September 23, 2008. And between when I taped the show and it aired, the U.S. Treasury Department announced a plan to set up a guarantee fund for money market mutual funds (MMMFs).
The reason the Treasury took this unprecedented step is that there was a huge run on MMMF accounts. After one fund "broke the buck" and told investors they would lose 3 cents for every dollar invested, it sent off shock waves. Concerned investors decided to bail out of their uninsured money market funds and move their money into safer savings vehicles. ) It indeed makes a lot of sense to move into an FDIC-insured bank account or simply shift money from regular MMMFs into a Treasury MMMF offered at your existing broker or fund company. A Treasury MMMF doesn't have implicit insurance, but it doesn't need it, because it invests in securities issued by the U.S. government. Your money has the super safe backing of the "full faith and credit" of the U.S. government.
Okay, so now that the Treasury has stepped in, can you stop worrying?
While it is clear that the Treasury is motivated to prevent any consumers from losing money in a MMMF account, the details of the guarantee plan have yet to be worked out, so it is not clear exactly what and what will not be protected by the U.S. government.
All we know right now as of this scoop is this:
- Protection will be extended only to account deposits of record as of September 19, 2008. So this protection is not going to extend to any new savings.
- It is not clear how much of your money will be protected; legislators are now pushing for the coverage to be similar to FDIC dollar limits.
- It is also not clear how long this Treasury guarantee will be in place. It may be for one year.
- Your brokerage or fund company will have to agree to participate (pay an insurance fee) into the plan. This is no different than the FDIC or NCUSIF insurance programs; only firms that pay into the pot can extend the guarantee to their clients. So it will be imperative to confirm your brokerage or fund company has joined in.
So here's the scoop:
- I still think it makes a lot of sense to move money into your brokerage or fund firm Treasury MMMF. Then when the smoke clears and we know exactly what the terms of the guarantee are, you will be able to easily move back into your original MMMF if you want.
- Or, if you are still super concerned, then go ahead and move your accounts into a an FDIC-insured account at a bank. With all this market turmoil, you never have to apologize for making decisions that provide you the utmost safety.
- Keep checking back here to the Suze Scoop. The minute we know how the Treasury's plan will work, we will be sure to give you the inside scoop.
Now you know.Reality check: What the recession means for you