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When A Savings Account Is Not A Savings Account

Friday, November 11, 2011 - 1:58 PM
From Time Moneyland
Money market mutual funds are not the same as savings accounts. A lot of people don't understand that, and now the SEC wants to make it clear.

There are two things I found interesting about the article:

First, at the bottom it stated the following about money market funds: "That modest risk is why they are able to pay a modestly higher yield." Perhaps this is true for the savings accounts at the megabanks, but that's not true for the internet banks. The internet bank yields may be low, but they have been a lot higher than money market fund yields for the last few years. Most all money market fund yields are under 0.05%.

The second thing I found interest is that it mentioned that the total value in money market funds is "somewhere north of $2.5 trillion". I wonder who holds all that money earning practically nothing.
Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,632
1. Friday, November 11, 2011 - 4:00 PM
If you consider market capitalization of US stocks is ~15T (37T annual trading value) and total depository savings is ~6T, then 2.5T in MM funds represents a 10-12% liquidity sweep that doesn't seem as remarkable as the absurd yields.  What is abnormal is an abusive FED policy, not the vehicle.
CraigPDCraigPD94 posts since
Jun 12, 2010
Rep Points: 336