You can't miss the financial chatter that is coming across the news services. Brokers fail. Banks fail. Stocks are down 20-25% since the first of the year.
Over the last 5-10 years, the term "money market funds" has crept into the financial vocabulary. The only place you could safely "park" your cash previously was with your friendly banker. Your account was insured by the FDIC (a federal agency) and you were sure to get your money back. The problem was that they paid a pittence for their interest. You know! No interest on a Christmas Club but they'd handle all the accounting. 1/2% interest. Maybe 1% interest. It was a haven for widow and orphan accounts. It is a known fact that 85% of all bank account holders will not switch out of the bank no matter what the incentive.
Money market accounts changed all that. Mutual fund companies like Vanguard and Fidelity offered "money market accounts" for their customers as an enticement to "park" their cash until they could amass enough funds to invest in their family of funds. The money market accounts paid 2-3-4-5-6% interest depending on whether interest rates were high or low. The money market fund is based on you buying shares of the money market fund at $1 per share and when you went to cash out, you'd get your $1 back. The selling point has always been "nobody has ever lost a cent in a money market account". Money market funds buy corporate and government bonds for 90 days and get really high interest that they turn around and pay to you the participant.
Now the good news and the bad news. The good news is that as of this date, nobody has still never lost a penny in a money market account. The bad news is that there are money market funds presently "closing themselves to new deposits". The reason is that some of the money market funds invested in risky brokerage firms (not perceived as risky one month ago). One broker went bankrupt and suddenly the money market fund investments didn't seem so safe.
The chances that money in a "money market account" will drop below $1 in value and that you might not get you money back is pretty slim. If necessary the big companies like Vanguard will put their own money into the money market account so that it doesn't lose. They don't want the public to lose confidence.
For the second time in a week, I'm telling you that there is no such thing as security. If you have money you don't want to lose, put it in a bank savings account with FDIC insurance so that you are assured you'd get you principal back.
Love,
Dad