The European Debt Crisis may seem a world away for DC banking consumers, but the interconnected world of 2011 makes events in Europe impact life in America. The current risk to a European Debt Default does exist to the $2.7 trillion dollar money market portfolio in the United States. When the debt crisis was isolated to Greece, money market worries were isolated, but the debt contagion has spread throughout Europe. The investment of money market funds in European banks brings risk and exposure to an otherwise low risk investment vehicle. As a consumer, what do you need to look for to ensure safety in a current money market investment?
1) Money market funds in a bank or credit union are covered by the Federal Deposit Insurance Corporation (FDIC). This is not a guarantee as banks do offer money market funds not covered by the FDIC. Contact your local institution to inquire about coverage on money market accounts.
2) Money Market accounts with investment institutions as Fidelity, Janus, etc. are not covered by FDIC. Contact your investment institution to request a prospectus of performance and investment information on money market accounts.
3) Passbook Savings or Traditional Savings accounts are usually covered by the FDIC. This includes investment banks, traditional banks, online banks, and credit unions. E*Trade is an online brokerage firm, but E*Trade Bank has a Complete Savings account that is covered by FDIC insurance.
In 2008, the Lehman Brothers collapse broke the belief in money markets not “breaking the buck”. The intervention by the Federal Reserve was unprecedented, and likely not to be repeated in lieu of European Debt Default. The best action is being proactive to insure confidence in the safety of any money market holdings. Action today can save a consumer the panic of tomorrow.