Panic in the Parking Lot for Cash

Low interest rates and paltry yields prompt money-market managers to waive fees and close funds.

By Brian J. O’Connor

Money-market mutual funds are sometimes called “parking lots” because they have been safe places to store cash while earning a modest return. And most of the time they have been about as exciting as watching a flat piece of striped black asphalt.

Until recently.

With short-term interest rates driven to nearly zero during a global pandemic, some money-market funds are closing down, while others are changing strategies, waiving fees and flirting with the previously unthinkable — negative yields, in which investors would be charged for the privilege of holding the funds.

The upshot is that in terms of risk and return, many investors might be better off taking their cash back to the bank.

“There is additional risk in a money-market fund, even if that risk is remote,” said Greg McBride, chief financial analyst for Bankrate.com. “But, as 2020 has taught us, low probability events can be very high impact.”

While money funds don’t often attract a lot of attention, they play a huge role in the economy. Institutional investors make up the bulk of investors in the funds, which held $5.2 trillion at the end of May but are now down to $4.8 trillion, according to Crane Data, which tracks money-market funds.

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