Update: The Treasury's Money Market Mutual Fund Guarantee
Update: The Treasury Dept’s Money Market Mutual Fund Guarantee
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 Sept. 18, 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 Sept. 23. And between when I taped the show and it aired, the U.S. Treasury department announced a plan to set up a guaranty 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.
As I discuss in this Suze Scoop, it indeed make 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 Sept. 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.
A Special Note for Credit Union Customers
If your savings is at a credit union I want you to listen up right now. Most credit unions are just as safe as an FDIC-insured bank account, but as I explained in an earlier Suze Scoop the wise move to make in these scary times is to double check that you are absolutely 100% protected.
Okay, first let me explain a few things about Credit Unions. Just like banks choose to participate in the FDIC program, credit unions have the choice to participate in the federal credit insurance program. It's official name is the National Credit Union Share Insurance Fund (NCUSIF). This insurance program is managed by the National Credit Union Administration, and was created by Congress in 1970. Since it's creation no insured credit union account has lost a penny. Federally insured credit unions are backed by the full faith and credit of the U.S. government. So if you have your money at a federally insured credit union and your don't exceed the insurance coverage limits, your money is super safe.
Okay, here's how to figure that all out. First, I want you to check that your credit union is indeed a member of the NCUSIF. You will see the logo on its website homepage, or check your latest statement. If your credit union is not federally insured, I suggest you move your money to a federally insured bank or credit union. Given what is going on in the markets and the economy right now, I think it is wise to err on the side of being super safe.
If your credit union is federally insured, and you have less than $100,000 deposited at the bank you can officially stop worrying. Your money is safe. Even if something happens to the credit union, the NCUSIF will step in and make sure you receive every penny of your money.
If you have more than $100,000 at a single credit union you probably know the drill by now: the money may be insured if your accounts meet NCUSIF rules. Again, it's all very similar to the same rules that govern FDIC bank insurance. I encourage you to use the NCUA's Share Insurance Estimator to verify that all your accounts, and all the money in those accounts are 100% insured.
Now you know. Be safe.
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