Money Market Funds Break the Buck

September 18, 2008
By Kevin Cafferty

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Today's Boston Globe has a good article, Money Market Funds Battered, which goes into some detail about how the recent economic activity in this country is affecting money market accounts.

The Reserve Primary Fund, a pioneer of money market funds, was the first this week to announce it had reduced the value of its shares to below $1. The fund cut its share value by 3 cents to 97 cents, which means a loss for investors, unthinkable for funds that were long regarded as safe havens. Only once before, in 1994, did a money market fund "break the buck," as the industry calls it.

What this means, essentially, is that for every dollar you have invested in a money market fund right now, you're only getting credit for 97 cents of that dollar. It's like earning reverse interest.
One person quoted in the article, 27-year-old Gokmen Kilincarslan, went so far as to transfer his money out of his money market account and into a bank savings account.

If this trend continues, I can see several consumers opting for safer investments (it's amazing that right now money market accounts, which once were considered "safe investments", is even a part of this conversation!) such as CDs or High-Yield Savings accounts.

What do you think? Is this a blip on the financial radar or a sign of worse things to come. Regardless, keeping some of your money in an airtight FDIC-insured account would seem to be one of the best ways to weather this current storm.