A lot of people stash their savings in money-market funds. But money-market funds actually come in 2 flavors—and one won't allow access to your money in the event of a financial storm. Do you know the difference?
Money-market accounts vs. money-market mutual funds
Many people have a traditional money-market account through a bank or credit and it is FDIC insured. It typically comes with a checkbook and you just write a check whenever you need money. So the money is readily available as you need it.
But there's trillions of dollars in something that looks like money-market account and has acted like a money-market account in the past, but goes by the name of a money-market mutual fund. You often get this kind of account through a brokerage house or mutual fund company.
Now there are new rules in place governing money-market mutual funds. And under the new rules, if we have another financial crisis, you won't be available to get to your money if you want it. The brokerage house or mutual fund company will dictate when you can get it.
Why are they doing this? The idea is to prevent a run on the money. If you want your money right away, they can charge an exit fee.
So how am I handling this new rule? I'm not changing anything. The money I have in money-market mutual funds is money that I can wait for access to if need be.
However, if you're in a money-market mutual fund and can't afford to wait it out in the event of a financial crisis, then there's only one safe thing to do. You need to move to a money-market account at a credit union or a bank. I know this is a bit of housekeeping, but you don't want to be in a position where you can't get to your money in a moment's notice.
And if you're confused about whether you have a money-market account or a money-market mutual fund, just look at your statement and the name of the account should tell you which flavor you have.