If you keep your cash in a money-market mutual fund at a brokerage firm, it may not be as safe as you think. What they are: These funds typically invest in a mix of US government bonds and high-quality corporate debt. They became tremendously popular, growing assets more than 70% over the past five years to $5.2 trillion, because the risk of losing money was very low and the yields often were higher than those offered by ultra-safe bank products such as saving accounts and money-market accounts, which are FDIC-insured. 

Problem: As the coronavirus ­pandemic accelerated in the spring, sparking a sudden recession and widespread unemployment, panicky consumers started draining their savings, including cashing out their money-market funds. Some funds considered slowing redemptions by imposing an exit fee and/or preventing investors from selling their shares for a short time period. The Federal Reserve—fearing that brokerage funds would have to sell holdings at a loss to meet redemptions, saddling investors with losses—staved off a potential crisis by backstopping the funds. 

What to do: Although the risk of losing money is not high, the yields are so low now that it is not worth adding to or keeping money in a money-market ­mutual fund. Recently, large money-­market funds averaged an annual percentage yield of just 0.12%. A year ago, the Fidelity Government Money Market fund yielded 1.8% but recently just 0.01%.

Safer alternatives: For cash you plan to invest soon, most brokerage firms offer a federally insured “cash sweep” account, where any cash from investment trades automatically goes. Your money may already be in a cash-sweep account, which recently yielded 0.01% at large brokerage firms such as Fidelity and Charles Schwab. They are safer than money-market funds. For longer-term savings, consider moving your cash to FDIC-insured money-market account online banks, where recent yields were much better—as high as 1%. 

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