Money Funds Lose a Safety Net

After September 18, insurance for money-market mutual funds is gone. Here's why you don't have to worry.

Since they were introduced nearly 40 years ago, money-market mutual funds have served as safe and reasonably high-yielding parking places for cash. And for all those years, there has been an implicit promise that the value of a share would stay at $1.

After September 18, insurance for money-market mutual funds is gone. Here's why you don't have to worry.

Since they were introduced nearly 40 years ago, money-market mutual funds have served as safe and reasonably high-yielding parking places for cash. And for all those years, there has been an implicit promise that the value of a share would stay at $1.

Finally, the funds would be banned from investing in "second tier" securities and would have to post their portfolios monthly. Fund managers have already enacted some of the proposed changes, making their portfolios safer.

Shop for Better Yields

The larger problem for money-fund investors is the pitiful yield. The most recent seven-day yield for taxable funds is 0.06%. Connie Bugbee, editor of the Money Fund Report, a mutual fund industry newsletter, believes that the new regulations could lower yields even further.

If you are not satisfied with money funds' minuscule yield, move your cash to a bank money-market deposit account or to a savings account, where you can find yields of about 2%. But there are some trade-offs: The number of withdrawals you can make each month may be limited, and you may not have check-writing privileges.

You'll find even higher rates at community banks and credit unions. And your money is supersafe, as long as you don't exceed the limits of deposit insurance — $250,000 per depositor per bank through December 31, 2013. (To find banks and credit unions with high-yielding accounts, go to CheckingFinder at www.checkingfinder.com and enter your zip code.)

If you're willing to step up the risk pyramid for a decent shot at higher returns, consider a short-term bond fund.

Copyrighted, Kiplinger Washington Editors, Inc.