Money Market Accounts, Money Market Funds, and September 18

In September of 2008, a $62.5 billion money market fund operated by the late Lehman Brothers “broke the buck,” meaning that the net asset value (NAV) of the fund dropped below the value of the investor contributions.

That is not ever supposed to happen, and when it did, the Great Panic of 2008 was officially underway.

Government Safety Net for Money Market Funds

Fearful that a run on money market funds which then totaled approximately $3.5 trillion would spell the utter and complete destruction of the financial system as we knew it, the government moved to protect money market funds with a guarantee that investors would at least get their money back no matter what.

On September 18, 2009, that safety net will be pulled.

Money Market Accounts NOT THE SAME as Money Market Funds

Even experienced financial folks sometimes get confused between money market accounts and money market funds, so the general public can be forgiven for fearing that September 18 will live in infamy as the day money market accounts tanked because the government took away the guarantee.

However, these fears are highly unfounded. Money market accounts, just like savings accounts and checking accounts, are protected by the FDIC up to $250,000 per depositor per institution.

Money market accounts are basically savings accounts. Money market funds, by contrast, are investments in securities. Those are two totally different risk scenarios.

September 18, 2009 will be just another day for depositors to money market accounts.

Nothing to see here.