“If there’s a run on these funds and your inventory runs out because you can’t access the cash, stores can go out of business in a month, people are in trouble and there’s a trickledown effect,” Mr. Larrea said. “That’s why the Fed steps in so quickly. Otherwise, it’s a disaster for everyone involved.”
Fund managers started waiving their fees. For example, the managers of the T. Rowe Price Cash Reserves Fund, a prime fund yielding 0.01 percent on Oct. 1, would have seen its return fall to -0.07 percent without management subsidies.
In August, Vanguard announced that it would close its only prime money fund, the $125 billion Vanguard Prime Money Market Fund and convert it to a short-term government securities fund. Vanguard followed by closing down two municipal money funds. In July, Northern Trust Institutional Funds closed down its prime fund. Fidelity closed down two prime funds in June after those funds lost 30 percent of their assets during March.
As money fund managers work to reconfigure their business, industry experts expect to see more efforts by the Fed to institute permanent reforms and safeguards.
“Money funds had seen a series of reforms after the financial crisis that went into effect over the last decade. This was the first test of those, and the jury’s still out,” said Peter Crane, chief executive of Crane Data.
In the meantime, money fund assets and yields have plummeted. For the last week of September, the Investment Company Institute reported a drop of $10.3 billion in assets, the 16th weekly decline in 19 weeks. The current yield for Crane Data’s index of the 100 top prime funds averages about 0.03 percent. And after posting annual returns of 1.58 percent for 2018 and 1.93 percent for 2019, the year-to-date annualized return for the index is just 0.48 percent. “It’s just going to keep going lower,” Mr. Crane said.
Investors might consider bank money-market accounts, which are insured by the Federal Deposit Insurance Corporation. Some accounts offer annual yields of 0.7 percent or more, according to Bankrate.com. That amounts to at least $70 a year on a $10,000 deposit. By contrast, uninsured money market mutual funds yielding 0.01 percent would return just $1 annually on that investment.