"The risk of 'breaking the buck'"
CNNMoney comments on "The risk of 'breaking the buck'". A reader asks, "I just heard that the federal government is no longer insuring money market accounts for their $1 per share value. Is that correct?" CNNMoney answers, "I think some people may have misunderstood the reports they've heard about the Treasury Department's announcement last week that it was letting its temporary money market fund guarantee program expire. The first thing you need to understand is that there are actually two types of money market vehicles that are sometimes confused with one another: money market [deposit] accounts and money market funds. Even though their names are similar, however, they are actually two very different types of investments that offer very different types of protection.... Although money market funds are not covered by the FDIC, they provide security another way -- namely, by attempting to keep a stable price or net asset value of $1 per share. By law, money market funds must limit themselves to high-quality debt securities. That reduces the chances of any of their holdings defaulting. Money market funds are also required to stick to debt with very short maturities, which makes it unlikely the value of their portfolios will drop when interest rates rise."
