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How will the government's plan affect my money-market fund?

Last week, the U.S. Treasury Department promised to insure the value of deposits in money-market mutual funds, much the same way that the Federal Deposit Insurance Corp. protects the first $100,000 in your bank account: Whatever you put in, the government now guarantees you'll get out.

However, the Treasury has since said that its umbrella is limited to deposits made before the close of business Sept. 19, the day the measure was announced. New accounts or money added to existing accounts will not be covered.

There's another catch: The guarantee is not automatic. Your money-market fund must pay a fee to participate in the program, and it's unclear which funds will join. The fee will probably be based on the amount of assets, although details are still being worked out, according to Treasury spokeswoman Jennifer Zuccarelli. The guarantee will last one year.

Money-market funds are operated by mutual fund companies. They are different from the money-market accounts offered by banks, which are federally insured and are advertised as a safe way to store money at higher interest rates than traditional savings accounts. Money-market funds are typically investments in short-term debt issued by large, stable institutions. That makes the funds low risk -- but not no risk.

Money-market funds have almost always produced positive returns. But last week, one of the nation's largest funds announced that the value of its shares had dropped 3 percent, and at least three others said they would close to limit unspecified losses to investors.

The move by the Treasury guarantees that you cannot lose money that has been deposited in a money-market fund. The Treasury has pledged as much as $50 billion to make this happen, and there is no limit to the amount that will be guaranteed in individual accounts.

-- Washington Post Staff Writers Ylan Q. Mui and Dina ElBoghdady

By washingtonpost.com Editor  |  September 23, 2008; 6:10 PM ET
Categories:  Your Pocketbook  | Tags: bailout, money market funds  
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