If you’re invested in a money market fund, you’ll want to pay attention to some new rules the Securities and Exchange Commission (SEC) will establish this week. Specifically, the rules allow some of these funds to charge their shareholders fees of up to 2% for withdrawing money.


A money market fund is a type of mutual fund with a return so low, it’s considered to be a cash-equivalent investment. You may even be invested in one without realizing it. When I opened my IRA, for example, my money was put into a money market fund by default. I had to research and buy other investments to optimize my portfolio.


The SEC will implement some new rules for these types of funds on October 14th. Among other rules, they’ll allow the fund’s boards to impose an extra “liquidity fee” if you withdraw your money from the fund under certain conditions (particularly, when everyone else is withdrawing, usually during a time of financial stress). CBS News says it goes back to the 2008 financial crisis:

It’s not that money market fund managers are greedy. It’s the result of the heavy withdrawals from shareholders who needed large amounts of cash immediately as the financial crisis spiraled out of control. Those rapid withdrawals amid falling asset values led several money market funds to lose money, meaning they “broke the buck,” sending new shock waves through the markets. As of Friday, money market funds will be allowed to charge shareholders fees of up to 2 percent if the weekly average liquid assets in the fund falls below 30 percent of total assets.

Basically, the idea is to slow down withdrawals when the fund loses its liquidity so that it doesn’t actually lose money. Many investment firms, like Vanguard, have already made some changes to prepare for the reform.

The new rules don’t apply to government funds, and CBS News actually recommends moving your money to a government fund if you have a money market fund. We’ve given you some other recommendations on where to park your money, too, depending on your goal. Keep in mind—the rules are for money market funds, not money market accounts, which are an entirely different thing (accounts are FDIC-insured bank accounts, not investments).


If you have a money market fund, you at least want to be aware of the change, and you can read the SEC’s rules at the link below.


Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds | SEC via CBS News

Photo by TaxCredits.net.