A safer alternative to money-market funds

  @Money October 12, 2012: 5:31 PM ET
fft money market

Money-market mutual funds aren't insured by the FDIC.

(Money Magazine)

An effort to increase the security and transparency of money-market mutual funds stalled in August when Securities and Exchange Commission chairman Mary Schapiro couldn't rally enough SEC support.

At issue: investors' belief that money funds, which aren't FDIC-insured, are risk-free.

To counter that perception, Schapiro wanted funds to disclose precise changes in their net asset value (NAV) per share; currently they all report $1, but that's because they're allowed to round to the nearest penny.

Related: Best banks 2012

And to ensure each fund could handle a flood of investor withdrawals if its NAV fell below $1 -- in 2008 one money fund's NAV hit 97ยข -- Schapiro wanted funds to keep a cash cushion on hand.

What is the CFPB?

Even without the proposed changes, it's money funds' "pitifully low" interest rates that should scare you nowadays, says Dallas adviser Charles Sizemore. Put your dough instead in a bank account, he says, where returns are similar and your money is insured. To top of page

Not worth the risk
Since money-market yields are so low, you're better off putting cash into an FDIC-insured account.
Average yield Best yield
Taxable money-market funds 0.02% 0.1%
Bank savings 0.12% 1.04%
Notes: Minimums for best yields: $1,000 for money-market fund, $2,500 for bank. Rates as of late August. Sources: Bankrate.com, Crane Data
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