Money market funds offer higher yields than bank savings but lack FDIC insurance

Money market funds provide higher yields than bank savings accounts, but they lack the Federal Deposit Insurance Corporation guarantee that protects deposits up to $250,000 per depositor, per bank. These mutual funds invest in short-term debt instruments, including US Treasury bills and commercial paper, aiming to sustain a net asset value of $1.00 per share. Because holdings have short maturities, portfolio yields respond quickly to changes in prevailing interest rates. Returns are driven by yield, with income returns ranging from 13.4% in 1981 to 0.01% in 2013 and 2014. Without FDIC insurance, shareholders can lose principal. Funds have occasionally "broken the buck," dropping below a $1.00 per share net asset value. First Multifund for Daily Income liquidated at $0.94 per share in 1978. Community Bankers U.S. Government Money Market Fund liquidated at $0.96 per share in the 1994. Reserve Primary fund dropped to $0.97 per share in 2008.