FDIC Insured MM vs Money Market Fund

[trainedmonkey]

I'm curious to know people's opinion of the importance of FDIC Insurance when making an investment decision for Emergency (short term) cash.

It seems that losses in Money Market Funds are almost unheard of and if you hold a Brokerage Account at one of the big mutual fund shops (i.e. Fidelity, Schwab, Vanguard, etc) is there any real advantage to holding another account in some other Financial Institution, if that other institution is backed by the FDIC?

I know the great depression could happen again....but.

Thanks.

[jmjj215]

Re: FDIC Insured MM vs Money Market Fund

It personally doesn't enter into the equation for me. I've never heard of a money market losing its value - and plenty of 'gurus' recommend you put your efund in a money market account w/ checkwriting capabilities.

[PRICEPLUS]

Re: FDIC Insured MM vs Money Market Fund

What jmjj215 said!

[JoyJoy]

Re: FDIC Insured MM vs Money Market Fund

We've been very fortunate with our MMF with Tiaa-Cref (Teachers Insurances and Annity Association - College Retirement Fund). For some reason I do feel we need to be with a bank close to home that does offer FDIC Insurance, while only leaving a small portion in TIAA-CREF. Don't ask me why. I had this feeling when the stock market went kerplunk a few years ago and we got out of tech stocks and put our money in Tiaa-Cref's MMF. That was a good decision. There is so much uncertainty now like never before. Maybe it's because there will be a big exodus of baby boomers leaving the work force in 2008! I don't know the jitters could be because hubby just retired on Friday! LOL.

Good question btw Trained Monkey!

[Broken Arrow]

Re: FDIC Insured MM vs Money Market Fund

Well, this is as far as I can tell about money market funds:

I read only one instance where a money market fund "broke the buck". I don't recall any details though. Suffice to say, they are extremely safe, so the idea of FDIC insurance on a MMA isn't that big of a deal to me.

However, what IS a big deal to me is interest. I think it used to be that MMFs consistently beat tradtional brick & mortar banks. That's why investors would choose it over the traditional banks.

However, with the advent of the internet, online banks became just as competive, if not more so by requiring lower minimums and incurring less fees.

The only advantage I can see with an MMF right now is that they can be factored in as part of a brokerage's total investment amount, and that can help you avoid brokerage fees.

Therefore, it's not hard to see why online banks have become so popular over MMFs. However, I admit that this is merely my opinions based on my own personal observations. Please take that for what it's worth.

[CRFSaver]

Re: FDIC Insured MM vs Money Market Fund

So remember there are Money Market Mutual Funds which are not insured under the FDIC. There are then MoneyMarket Deposit Accounts that were established with the DIDMCA in the early 80's for the banks to compete with Money Market Mutual Funds. Mutual fund companies are sensitive to ever breaking the buck. There has been one instance where the buck was broken but several times where technically it should have been broken. In those cases the management company normally buys the defaulting position from the fund to save the buck barrier.

When it is all said and done, it comes down to your comfort level. 5 basis points extra you get in a MMMF is not worth any stress you have from worrying about it.