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A Run of Money Fund Redemptions

Posted by: Tara Kalwarski on February 18, 2009

Retail money fund assets dropped for the sixth consecutive week, to $1.35 trillion, as of Feb. 12, according to the Investment Company Institute.

Treasury and municipal money market funds felt the brunt of redemptions and assets dropped $6 billion. Taxable non-government offerings, which typically earn higher yields by investing in short-term, high quality instruments such as certificates of deposit and commercial paper, had a far smaller $400 million decline.

Those so-called “prime funds,” including Vanguard Prime Money Market Fund, yielded an average 2.45% (2.55% at the Vanguard fund) for the 12 months ended Jan. 30. Retail Treasury money funds averaged 0.96%. (On average, retail money market funds yielded 1.66%, after fees, for the 12 months ending Jan. 30, vs. 4.54% a year ago.)

Still, says Peter Crane of money fund tracker Crane Data, “while yield has played a role in the success of money funds, convenience and simplicity have been bigger drivers.” Crane estimates money funds have produced over $1 trillion in interest income over their 38-year history—over $300 billion more than bank savings accounts would have yielded.

How about you? Sticking with your money market fund? Or trading in for higher-yielding CDs?

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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