Hi BK,

Why would anyone maintain their money in a money market fund?

Better interest credits than typical savings/checking accounts, with similar safety & liquidity.

Just for the sake of simplifying things, I was thinking of using Vanguard for most of my finances.
Of course, doing so would lose the FDIC insured status.
Is that a big deal?

Only if you believe using Vanguard is a risk not worth taking.

Others must be using these accounts, so what's the big advantage.. if any?

Generally, people weigh what they stand to gain, relative to the probabilities and amount of those gains... versus what they stand to lose, and the relative probabilities of those losses....

OR... they just "go with their gut feelings."
(That's the general public's nature.)

Luck!
Dave Donhoff
Leverage Planner

I agree with everything Dave said. Yes, there is more risk because of no FDIC insurance. Another plus is that, if you use a broker for stock transactions, having a money market account at that broker can facilitate your stock purchases/sales.

Thanks.

The thing that I was considering was this.

If a non-FDIC money market account collapses. Aren't we all in a world of hurt anyway?

Wouldn't things have to be REAL bad for such a thing to happen?

Personally, I would never invest anything into a uninsured fund, account that I could not afford to loose. You might as well go to the Casino and hope for the best. And have a great time.

There is reason for having both. One is for investing, the other for protection of funds through FDIC. There is a limitation on how much funds are protected. A money market through an investor can lose money as the rate changes.

In the 80's Savings andLoans collapsed but other banks were okay. Just as right now the housing market is in upheaval through IMO greediness, and the government is going to bail out the mortgage companies.

If your money market account is with a small agency, were it to become insolvent, it might be allowed to die.

If in a large agency, there'd be a good possibility that a way would be found to rescue it.

Bear Stearns found trouble in a bear market ... but another agency was helped to bail them out.

On the other hand ... if a major bank were about to go down ... how much possibility do you think there might be that the funds in FDIC could cover the losses?

Insurance is only as good as the assets of the carrier.

The government would help.

But - the government is in deep water, as well.

Better to own an asset that will survive tough times.

That will hold its value.

Not to have lent your money to someone else, letting them use it - and in the meantime, you have, what?

Their promise to pay you back? That's right!

Actually, about 5 years or so ago, US$0.65 would have bought CA$1.00.

Now, that CA$1.00 will buy about US$0.98 (a few months ago it was US$1.06).

Which means that your 65 cents 5 years or so ago would have grown to about 98 cents to $1.05 now, in addition to whatever it would have earned or grown to in the meantime.

If you're interested in a major player in the tar sands, look up SU.TO, then ask for a chart showing their results over the last 5 years. Natural gas? ECA.TO. Oil and gas? NXY.TO.

Or, for a pipeline, try ENB.TO or TRP.TO.

A while ago, you could have bought shares in an innovative steel company - DFS.TO ... but no longer ... they were bought by a privateer: not available to the public any more. Headquartered ... where? India??

Nickel? Inco was bought out buy ... somebody from God knows where. Brazil? I think. Same with No. 2, Falconbridge.

Fabricator of large piping? IPSCO in Regina, Sask. - gone. That is, they're operating ... but owned somewhere else.

Or, how about Alcan? No dice - Alcoa bought 'em out: work done here, management (and profits) elsewhere.

What's one of the reasons that the Canadian Dollar has increased so much?

People from various foreign companies are buyin' 'em ... so they can buy Canadian resource cos.

Pretty soon we'll be hewers of wood and drawers of water, and the managers'll be living somewhere else.

Oh, what's that?

Did you say that hewing wood and drawing water have all been automated, now?

That does leave us pretty well up shi! creek, doesn't it?

My kids are in their 40's, with no kids so far, so little possibility of having any.

I'm rather thankful - North America (north of the Alamo) has some tough days ahead.

As one entertainer (I think a U.S. black person, as a matter of fact), said a few years ago, "I've been rich - and I've been poor. Rich is better".

We've become used to living higher on the hog during the past three or so generations than any society in the history of the world lived.

When I went to Korea 55 years ago, we were shown through what used to be the king's palace, until 1905 - 1910, when the Japanese took over. Most of us when I was a kid in the 1940s lived better than that.

But we in Canada depend heavily on the U.S., as you buy most of our exports ... so we've said for quite a while that if the U.S. gets a sneeze ... Canada gets pneumonia.

It'd be smart for both of us to hold some of our assets in foreign assets.

And real assets are better'n paper.

ole joyful ... rather thankful to be closing in on age 80

Martin Weiss has some interesting thoughts regarding non-FDIC and MM accounts.

www.moneyandmarkets.com/issues.aspx?Triple-Crisis-Your-First-Defense-1887

MONEYANDMARKETS»

Triple Crisis: Your First Defense
by Martin D. Weiss, Ph.D.
June 16, 2008

I've lived through four U.S. recessions, two bouts of surging inflation, and at least two close encounters with a Wall Street meltdown.

But this is the first time in my lifetime �" and probably yours �" that all three have converged in one time and place.

It's an unprecedented Triple Crisis.

And despite repeated Wall Street attempts to deny it �" including a new round of cheerleading Friday in response to stronger-than-expected retail sales numbers �" the severity of the Triple Crisis is undeniable:

* We have the worst food and energy price inflation since the early 1980s.

* We've just seen the worst surge in unemployment in 22 years. And ...

* Financial institutions continue to book the biggest losses of all time, with more than double the losses yet to come, according to the International Money Fund.

These are not hidden facts I've dug up from obscure footnotes on financial statements or off-the-record interviews with industry insiders. They are irrefutable, blatantly obvious numbers reported by the authorities.

What is most remarkable, however, is the sheer speed of events �" a fact that not only substantiates the reality of the Triple Crisis, but also implies the presence of at least three vicious cycles:

* U.S. banks and lenders, recoiling from the massive numbers of mortgage foreclosures, are dramatically tightening lending standards �" a move that makes it far more difficult for American homeowners to refinance their mortgages and triggers still more foreclosures.

* U.S. consumers, fearing job insecurity and falling home values, are cutting back. This, in turn, is prompting employers to cut jobs, working hours or both �" a move that can only cause consumers to slash their spending even further, but also may prompt many more to dump their homes onto the already-saturated housing market.

* Surging commodity prices are driving up the cost of virtually every product and service in America. These rises, in turn, are driving investors from stock and bonds into commodities and tangibles, pushing prices up even further.

In this context, the strength in retail sales reported on Friday is an aberration �" a one-time blip caused by consumers spending their rebate checks and by the higher prices on many items they had to buy.

It is not your signal to let up your guard or change your investment strategy!

As we've been showing you in our recent issues of Money and Markets, an important part of that strategy is to go on the offensive and pursue profit opportunities in commodities, foreign currencies and foreign markets.

But an equally important aspect is a solid defense, the primary topic I want to cover this morning ...

Your First Defense: Cash (But Not in a Bank)

No matter what may be happening elsewhere, today's uncertain environment mandates a healthy allocation to cash. But don't blindly assume that cash must be stashed in a bank.

U.S. banks pay far-below-market rates on personal checking accounts. On business checking accounts, banks pay you no interest whatsoever.

You do get better interest with CDs. But there, your liquidity �" the access to your funds �" is severely restricted by early-withdrawal penalties.

Instead, I recommend a plan I call "Treasury-Only Savings and Checking," giving you what I consider the very best combination of safety, yield, liquidity, and convenience available today.

Instead of using a bank, you use primarily a special kind of money market mutual fund �" a Treasury-only money fund.

A Treasury-only money fund invests all of your money in short-term U.S. Treasury securities (plus other securities that are 100% backed by U.S. Treasuries). The fund uses a bank, but strictly as a custodian for the securities, and those accounts are completely segregated from the bank's deposits or assets.

The Treasury-only money fund also provides you with check-writing privileges, so you can use it as your personal or business checking account. There are many advantages:

Advantage #1. Higher Yields. Treasury-only money funds have generally yielded substantially more than the yield offered on the average personal checking account in the U.S.

The yield differences fluctuate and may be different when you read this. However, let's assume an average balance of $5,000. And let's assume you boost your average yield from 2% to 4%. Your interest income, when compounded, could actually be more than two times greater: Assuming no change in these rates, over a 10-year period, you would boost your interest income from $1,095 to $2,401.

In your business checking account, if you assume an average balance of $50,000, your interest over that same time period would be $24,012. That's a total 10-year return of nearly 48% on your money that you might not have earned otherwise.

Plus, in a business of fairly average activity, you would also be able to take better advantage of the "float" �" the funds remaining in your account while checks written against them have not yet cleared.

With this float, your average daily balances can increase by 50% or more. Assuming an average daily bank balance of $75,000, your total yield on your $50,000 book balance jumps to $61,018 over 10 years. So we're not talking about petty change. This could be a significant, untapped source of income.

Advantage #2. Low Fees. Most banks overcharge for checking, low balances, wire transfers into your account, bounced checks and a series of other services.

But when a bank quotes you yields �" on any kind of account �" it always quotes you the yields before deducting all its service fees. And with bank charges and fees currently at their highest level in modern history, it's almost impossible for most bank customers to collect anything near the advertised yield.

In contrast, when a money fund quotes you its yield, it is invariably after deducting its fees and expenses. Of course, the past or current yield is no guarantee of future results. But the yield quoted is the net yield that investors in the fund are actually earning.

How much of a difference can this make? In most cases, a very large one. Indeed, we figure that, after deducting the myriad bank fees, most Americans today are getting a net yield of close to zero on their personal checking accounts, while many wind up losing money. Here are just two examples of outrageous fees:

* It rarely costs banks more than $2 to process a bounced check. But most charge you close to $30.

* It costs them nothing to receive a wire transfer from another bank. Yet most banks charge $10 or more.

Many banks charge you if you make too many transactions ... and they charge you again if you have too few transactions. They get you on the way in when you make deposits �" and on the way out, when you make withdrawals. They often charge a hefty fee if you use the automated teller machines; and with some accounts, they will charge you yet another fee if you use live tellers.

In contrast, most Treasury-only money funds charge you nothing or very little for each of these situations.

Advantage #3. One Account for Both Checking and Savings. At banks, most customers divide their money between (a) a checking account, where they give up most of their yield, and (b) a savings account or CD, where they give up immediate access and liquidity. No matter what, it's almost impossible to get both optimal liquidity and solid yield in the same bank account.

In contrast, Treasury-only money funds let you keep nearly all of your cash assets �" whether for savings or for checking �" in one single account. This means that whether you're investing $1,000 or $1 million ...

* You have complete access to all your funds at all times.

* You can withdraw the entire amount, with no penalty whatsoever. Just write a check or request a wire transfer, and it's done.

* Your money consistently earns competitive, current market yields.

* You never have to worry about leaving too much in your checking account at lower yields. The full amount is available for checking at all times, earning full interest.

* You continue earning interest on your money up until the moment your check clears. The longer it takes for your payees to cash their checks, the more interest you earn.

In short, you get maximum liquidity and maximum yield on your entire balance. Plus, there's no more shuttling back and forth between checking, passbook savings, money market accounts, CDs and other complex combinations.

Instead, you'll be able to have one large account that meets nearly all your needs �" checking, savings, and investment. (You may still need one more small account that I'll tell you about in a moment.)

Advantage #4. No Limit to Your Account Size. When you use banks for your savings or checking, you have to go through a series of contortions to keep your money safe from failure:

* In each CD, you would have to make sure your initial investment is actually under the $100,000 limit. Otherwise, the accumulation of accrued interest could put your balance over the limit, and that portion would not be covered by the FDIC.

* You have to spread your CDs among various accounts. This means you would have to keep track of several accounts at the same time.

* With large checking accounts, you would have to call your bank almost daily to make sure it's not over the $100,000 FDIC limit. Reason: If there are several large checks outstanding, your bank balance could be over the limit; and if the bank fails at that time, any excess amount could be a lost.

With Treasury-only money funds, I believe that federal insurance is a moot point. Your funds are invested strictly in securities that are guaranteed directly by the full faith and credit of the U.S. Treasury Department. And there is no limit on the Treasury's guarantee of its obligations �" whether you're a beginning saver with just a few thousand, or you're a Bill Gates with billions.

Unlike bank accounts, there is no limit to your account size with a Treasury-only money fund �" another reason for keeping nearly all your cash in one single, easy-to-manage account.

Remember, all the assets of Treasury-only money funds are invested in short-term U.S. Treasury securities (plus some securities that are fully backed by U.S. Treasuries). These are widely considered to be the safest securities in the world. So other than a decline in the value of the U.S. dollar itself (a subject I will cover shortly), U.S. Treasury securities are simply not at risk.

Indeed, most people in the financial industry �" except perhaps for some bankers �" would agree that the direct guarantee of the U.S. Treasury Department is actually stronger than the guarantee of the Federal Deposit Insurance Corporation. As a result, U.S. Treasury securities receive a higher credit rating than bank CDs.

The reason is obvious: There have been more than 3,000 bank and S&L failures in the last 30 years, causing savers and businesses serious inconveniences and even outright losses. In contrast, there has never been a default on U.S. Treasury securities ... even when the government was temporarily shut down due to a budget dispute ... even when the entire country was torn apart by the Civil War.

Advantage #5. Exempt From Local and State Taxes. The income you earn on both Treasury-only money funds and bank accounts is subject to federal income taxes. So there's no difference between bank deposits and Treasury-only money funds in that regard.

However, when it comes to local and state income taxes, there is a significant difference: The dividends you earn on Treasury-only money funds are generally exempt from local and state income taxes. On the other hand, the income earned on bank accounts and CDs is not exempt.

And you should know that I did not account for the added benefit of this tax exemption when I compared the yields on bank deposits to those on Treasury-only money funds. Therefore, depending on your city's or state's tax laws, the after-tax yield advantage with a Treasury-only money fund could be even greater.

Advantage #6. Truly Free Checking. Nearly all banks charge you �" one way or another �" for your checking privileges. They may charge you a fee for each check you issue. They may charge you a flat monthly service fee. Or they may charge you a combination of both.

Sometimes banks say they're giving you "free checking," but require large minimum balances, paying little or no interest. One way or the other, you're paying for checking �" and probably too much.

Most Treasury-only money funds do not charge you any extra fees for check-writing privileges. You can write as many checks as you want, as often as you want. At most money funds, when they say "free checking privileges," they really mean it.

This is not true for all Treasury-only money funds, however. And some do levy certain charges for special services �" that's to be expected. But those charges are almost always lower than the charges at banks. Moreover, if you shop carefully, you can reduce even these charges down to virtually zero.

Advantage #7. Immediate Liquidity. As with any financial institution, there will be a holding period for the out-of-town checks you deposit to your account. But your money goes to work for you right away, generating interest income immediately. And if you deposit your money via wire transfer, you can avoid the holding period; your funds will be available immediately.

In short, except for the holding period, all of the funds received by your Treasury-only money fund are available to you all of the time. There are four ways you can withdraw your money from your Treasury-only money fund:

1. You can write a check against the balance in your account �" to yourself or to another payee.

2. You can call or send a fax to your money fund's shareholder service department, giving them instructions to issue a wire transfer. (Before the fund can accept your wire instructions, however, you will need to have a signed authorization on file. This can be done when you open your account.)

3. You can request a check be sent to you directly from the fund. You can also authorize telephone instructions for redemption by check when you open your account.

4. You can establish a systematic program to automatically send a set amount to you monthly, quarterly, semi-annually or annually.

The disadvantages: As you can see, Treasury-only money funds offer you the opportunity to earn more. They can save you a great amount of money and time. They give you far more access to your money, opening up new investment opportunities, and potentially transforming the way you do business.

However, there are two disadvantages �" one small and one not-so-small:

* Most money funds impose a minimum amount for each check, usually $100. So you may need a small checking account for checks under $100. If you shop around, though, you should be able to find a Treasury-only fund that will let you write checks for as little as $50.

* More importantly, never forget that a Treasury-only money market fund is denominated exclusively in U.S. dollars. Therefore, if the U.S. dollar goes down in value against other major currencies or other measures of value such as gold bullion, then the value of your dollar-denominated assets (including the safest of them all) also goes down.

However, if you are a U.S. resident or do business in the U.S., you will still probably need to keep most of your funds in U.S. dollars. Therefore, the solution is not to simply avoid holding dollars �" that would be both impractical and potentially riskier.

Rather, we believe the more prudent approach is to follow the plan I propose here for most of your keep-safe funds ... while, as a hedge, separately allocating some funds to investments that rise when the dollar declines. For example, you can now buy exchange-traded funds (ETFs) offered by Rydex Funds, devoted exclusively to investing in major world currencies.

Some Treasury-only money funds to consider:

* American Century Capital Preservation Fund I, (800) 345-2021,
www.americancentury.com

* Dreyfus 100% US Treasury MMF, (888) 782-6620,
www.dreyfus.com

* Fidelity US Treasury MMF, (800) 343-3548,
www.fidelity.com

* Reserve Fund/US Treasury Fund, (800) 637-1700,
www.reservefunds.com

* Schwab US Treasury Money Fund, (866) 232-9890,
www.schwab.com

* T. Rowe Price US Treasury Money Fund, (800) 541-6066,
www.troweprice.com

* US Treasury Securities Cash Fund, (800) 873-8637,
www.usfunds.com

* Vanguard Treasury MMF, (800) 662-7447,
www.vanguard.com

* Weiss Treasury Only MMF, (800) 242-8092,
www.tommf.com

Good luck and God bless!

Martin
�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"�"
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Just to clarify one thing stated above, the FDIC could and would cover losses if a bank were to fail. It has done so many times. The only "doomsday" scenario you can come up with where the FDIC might not be able to cover losses would be if the entire U.S. government and currency collapses.

If you want a government-backed asset that pays more than an FDIC-insured savings account, you might want to look at U.S. Savings Bonds. They pay more than many non-FDIC insured accounts offered by investment houses right now, and they are a "sure thing" investment. I would not think that you would want all your money in them, but there might be a place for them in your mix of investments. Suze Orman thinks so, anyway. The biggest limitation is you can only buy a total of $20,000 of them in a year, and to get that much you need to distribute it between different series bonds and between electronic and paper bonds. The limit for each type is $5,000.

"Just to clarify one thing stated above, the FDIC could and would cover losses if a bank were to fail. It has done so many times."

Do you think FDIC coverage is better than that of the U.S. Treasury?

I wonder why the FDIC took so long to warn consumers about the safety/solvency of those S&L's that failed in the 80's.

Kind of makes one wonder whose interests they were watching out for back then.

Distortions, Deceptions and Outright Lies
by Martin D. Weiss, Ph.D.
April 7, 2008

"In this environment, the unrelenting pressure �" even the mandate �" to transform well-meaning public officials into chronic liars is undeniable, and the examples are many:

* High-ranking government officials in the 1970s who swore the S&Ls were safe, even as thousands of thrifts were failing all around them.

* FDIC and Federal Reserve officials in the 1980s who vehemently denied the threat to commercial banks, even as the bank failure rate surged to the highest since the Great Depression.

A link that might be useful:

Distortions, Deceptions and Outright Lies
by Martin D. Weiss, Ph.D. 04-07-08
www.moneyandmarkets.com/issues.aspx?Distortions-Deceptions-

This is not a political discussion; I have no idea who is looking out for whom, but that's not germane to the topic of what is and isn't a safe investment.

To respond to some of your points, the savings and loans were covered by the FSLIC, not the FDIC, and the account holders at the savings and loans got their money -- at the expense of taxpayers, granted, but the accounts were insured.

If there's a high failure rate at commercial banks, that would simply seem to make a good case that people need the FDIC insurance. Finally, I think the FDIC-backed accounts and those backed directly by the U.S. Treasury are equally safe -- both are backed by the "full faith and credit of the U.S. government."

To answer the OP's question, as far as a MM fund from someplace like Vanguard, the likelihood that the parent company would allow the value of the fund to fall below the dollar level is so low as to be negligible. As someone mentioned, if that happened, we'd have way more to worry about than the FDIC.

So, if you want to keep all your short-term money in a MM acct at Vanguard, I don't see why you shouldn't. You might need to keep a small account in a regular bank for stuff like cash w/drawals for grocery shopping and whatnot. If you never see a teller, and have direct deposit of your pay, you could go w/ an online bank for that--ING, Emigrant, etc. They pay better interest than the Chase-Citi titans, and levy fewer nuisance fees.

So, in conclusion:
If I dump my amazing riches into a Vanguard treasury money market, I can rest assured that I am as 'secure' as I would be in a solid FDIC bank?

Is there a consensus on that point?

It's just an intuition, but Vanguard has always "seemed" to be a company that is as honest and on the up-and-up as one could hope for!

Kelt

"This is not a political discussion; I have no idea who is looking out for whom, but that's not germane to the topic of what is and isn't a safe investment."

I'm not interested in turning this thread into a political discussion, but I believe our politicians ARE to blame for the current mess in our banking system.

"To respond to some of your points, the savings and loans were covered by the FSLIC, not the FDIC, and the account holders at the savings and loans got their money -- at the expense of taxpayers, granted, but the accounts were insured."

Your right. It was at the expense of the taxpayers, just like it is now!

In the 1980s, during the savings and loan crisis, the FSLIC became insolvent. It was recapitalized with taxpayer money several times, including with $15 billion in 1986 and $10.75 billion in 1987. However, by 1989 it was deemed too insolvent to save and was abolished along with the FHLBB; savings and loan deposit insurance responsibility was transferred to the FDIC.

Now we have to wonder how solvent the FDIC is because there are questions being raised about how many bank failures the FDIC could handle at once.

How many Americans knew that the FDIC Bank Insurance Fund (BIF) was broke in 1991, to the tune of negative US$ 7 Billion Dollars and also broke in 1992 to the tune of US$ 100 Million Dollars? Not only was the bank insurance fund insolvent in these years, it was in debt.

A quote from 1998 FDIC Report to Congress: The BIF (Bank Insurance Fund) has grown steadily from a negative fund balance of $7 billion at year-end 1991 to $29.6 billion at year-end 1998.

Consider, for a moment, the collapse of Bear Stearns. In order to assume that bank, JP Morgan asked for, and received, a special waiver from the Federal Reserve to keep $400 billion of suspect of Bear Stearn's assets off the books of JPM (page 4 of the linked document). While JPM may have been padding the books a little bit here, due to the uncertainty of how bad the wreckage might turn out to be, $400 billion dwarfs the $52 billion reserves of the FDIC.

If one medium-large bank collapse could wipe out the FDIC by a factor of nearly 8, what do you suppose would happen if there were multiple, simultaneous bank failures?

"If there's a high failure rate at commercial banks, that would simply seem to make a good case that people need the FDIC insurance. Finally, I think the FDIC-backed accounts and those backed directly by the U.S. Treasury are equally safe -- both are backed by the "full faith and credit of the U.S. government."

I'm with Martin Weiss on this one, so I think we will have to agree to disagree.

Links that might be useful:
www.financialsense.com/fsu/editorials/martenson/2008/0414.html
www.fdic.gov/about/strategic/report/98Annual/cond.html
www.fdic.gov/about/strategic/report/98Annual/122.html
www.ascotadvisory.com/Incorporations_Directory/Bank_Insurance_FDIC.html