Investors in one of the Reserve money-market funds are getting a break. The Treasury has agreed to backstop the Reserve U.S. Government Fund, which is among more than a dozen Reserve funds that froze customer withdrawals in September (Here's the back story.)
The fund is covered by the Treasury's Temporary Guarantee Program for Money Market funds. In a press release yesterday, Bruce Bent, president of the Reserve Management Company, said the U.S. Government Fund will return all of investors' money early next year.
Unfortunately for investors in other Reserve funds, a Treasury spokeswoman told Bloomberg that the department doesn't foresee a similar agreement with any other funds. However, investors in the Reserve Primary fund are getting some, but not all, cash back.
Interestingly, Bruce Bent, founder of the Reserve, criticized other money market funds on Nightly Business Report last summer for taking on too much risk:
"It's supposed to be a mantra. Every morning, every night, a money fund provider should be safety of principal, liquidity, a reasonable rate of return and a sound night's sleep. And they forgot the mantra," he said.
A couple of important things to keep in mind when it comes to money-market funds: First, what happened with the Reserve Primary isn't normal. In U.S. history, only a couple of money-market funds have broken the buck. But even though they're usually safe, money market funds aren't insured by the FDIC. So if you want to truly get a sound night's sleep, stick with a bank account.
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Peter Wu of OR 1:01PM November 26, 2008
of 3:56PM November 21, 2008
Maverick M of CA 10:34AM November 21, 2008