MADISON, Wis. (9/29/08)--In the wake of recent financial bailouts and questions over the safety of financial instruments, there's been considerable confusion over the difference between money market share accounts at the credit union, and money market mutual funds. The most important difference: One is insured and one isn't.
Money that members place in money market share accounts--which are substantially similar to banks' money market deposit accounts--is backed by the U.S. government through the National Credit Union Share Insurance Fund (NCUSIF). It insures funds up to at least $100,000 for a standard account, or $250,000 if the money is specifically in a retirement account.
A similar level of insurance is available through the Federal Deposit Insurance Corporation (FDIC) for bank deposits.
In contrast, the money in a money market mutual fund does not carry insurance. The recent Treasury Department proposal, however, would temporarily guarantee money market mutual funds for a year to boost investor confidence.
"The Treasury Department's proposal is currently written to guarantee only those funds deposited on or before Sept. 19," warns Steve Rick, senior economist, Credit Union National Association, Madison, Wis.
"Given recent volatility in the market, it makes sense to place any additional savings in an insured money market share account at depository institutions such as a credit union because of the share insurance up to at least $100,000," Rick said.
Other important points to remember about these financial instruments include:
Money market share accounts offer higher yields than traditional savings accounts, but usually have higher minimum balance requirements than share savings accounts, and money market share accounts typically allow limited transactions.
A money market share account is just that--a money market share account at a credit union or a money market deposit account at a bank, whereas a money market mutual fund is a collection of short-term debt investments held by that mutual fund.
Despite the associated risks of uninsured money market mutual funds, they're important savings and investment vehicles for many consumers.
For more information, read "Credit Unions: Safe and Sound" in Home & Family Resource Center.
courtesy of cuna.org