How many money market funds have broken the buck?
Smith: Since their introduction in 1971, money market funds have broken the buck just two times. The first was in 1994, when a fund was liquidated at 96 cents per share because of large losses in derivatives.
If the variance does exceed $0.005 per share, the fund could be considered to have broken the buck, and regulators may force it into liquidation. Buck breaking has rarely happened. Up to the 2008 financial crisis, only three money funds had broken the buck in the 37-year history of money funds.
While money market funds are not FDIC-insured, only two money market funds have failed. The first was a small institutional fund in 1994 and the other was the collapse of the Reserve Fund in September 2009, triggered by the Lehman Brothers bankruptcy.
During the financial crisis in 2008, just one money market fund (MMF) “broke the buck”—that is, its share price dropped below one dollar. The Reserve Primary Fund announced on September 16 that the value of its shares had dropped to 97 cents.
How safe are money market funds? There is little risk associated with money market funds. The U.S. Securities and Exchange Commission (SEC) mandates that only the highest-credit-rated securities are available in money market funds.
On occasion, a money market fund has “broken the buck,” meaning that its NAV fell below $1 per share. But fund managers generally want to avoid that happening, even if it means using their own capital to absorb losses.
Money Market Funds
Ultra-conservative investors and unsophisticated investors often stash their cash in money market funds. While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.
Government money market funds invest only in assets backed by the federal government—for example, Treasury bonds. Because of this government backing, they're considered the safest and most liquid type of money market fund.
The Bottom Line
Although it's extremely unlikely that your money market fund will break the buck, it's a possibility that shouldn't be dismissed when the right conditions arise. Financial Industry Regulatory Authority. "Taking a Look at Money Market Funds." U.S. Securities and Exchange Commission.
Stability & safety
While not insured by the FDIC, the funds are required by federal regulations to invest in short-maturity, low-risk investments, making them less prone to market fluctuations than many other types of investments.
Can Vanguard Federal money market fund lose money?
Can I lose money when I invest in money market funds? Yes. Although money market funds seek to maintain a stable $1 share price, capital preservation is not guaranteed.
Accounts of Charles Schwab & Co., Inc. are insured by SIPC for securities and cash in the event of broker-dealer failure. The Schwab Money Funds are protected as securities by SIPC.
Money market funds can be a good fit for investors looking to benefit from the current interest rate environment or saving for a short-term goal. Keep in mind that while the funds are considered low risk, they are not FDIC-insured.
There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.
The Bottom Line. Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't.
| Money market fund | Expense ratio | 7-day SEC yield |
|---|---|---|
| Vanguard Federal Money Market Fund (ticker: VMFXX) | 0.11% | 5.3% |
| Fidelity Money Market Fund (SPRXX) | 0.42% | 5% |
| North Capital Treasury Money Market Fund (NCGXX) | 0% | 5.4% |
| Schwab Municipal Money Fund - Investor Shares (SWTXX) | 0.34% | 3.3% |
A15: If a money market mutual fund held securities on which the U.S. Treasury defaulted on the payment of interest or principal, then the fund would need to sell those defaulted securities, unless the fund's board of trustees determines that disposing of the securities would not be in the best interests of the fund.
In addition the Adviser normally invests at least 80% of the fund's assets in U.S. Government securities and repurchase agreements for those securities. You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so.
Because they invest in fixed income securities, money market funds and ultra-short duration funds are subject to three main risks: interest rate risk, liquidity risk and credit risk.
They attempt to keep their net asset value (NAV) at a constant $1.00 per share—only the yield goes up and down. But a money market's per share NAV may fall below $1.00 if the investments perform poorly. While investor losses in money market funds have been rare, they are possible.
Which money market funds broke the buck?
On Sept. 16, 2008, the Reserve Primary Fund broke the buck when its net asset value (NAV) fell below $1 per share. It was one of the first times in the history of investing that a retail money market fund had failed to maintain a $1 per share NAV. The implications sent shockwaves through the industry.
Money market funds are usually considered to be safe investments, but it's important to remember that these investments are intended for the short term. With maturities of 13 months or less, the funds stay liquid and allow you better access to your money than longer-term investments.
| Symbol | Fund Name | Yield |
|---|---|---|
| AGQXX | U.S. Government Money Market Fund | 4.68% |
| VYFXX | Vanguard New York Municipal Money Market Fund | 3.57% |
| LTFXX | Western Asset Select Tax Free Reserves | 3.36% |
| USEXX | Victory Tax Exempt Money Market Fund | 3.36% |
Money market accounts and savings accounts are equally safe places for consumers to keep their savings. However, it's important to open accounts at banks that are covered by FDIC insurance. You can check if your bank is FDIC-insured here.
CDs may pay higher interest than MMAs, especially for longer maturities. Both types of accounts are safe, as they carry FDIC insurance up to $250,000, but MMAs are more liquid and don't involve early withdrawal penalties.
