WASHINGTON, May 19 (UPI) -- The U.S. Federal Deposit Insurance Corp. said Wednesday banks need to remain alert for risks to their money market mutual funds as interest rates rise.
The FDIC noted that money market mutual funds are not bank deposits, unlike the similarly named money market deposit accounts. Both products are often marketed as essentially high-yield savings accounts, but mutual funds are not FDIC insured and there is some risk that customers might lose money.
Many fear that the current low interest rates have squeezed funds during the past two years. They also fear rising interest rates might pose a further threat if mutual funds aren't careful, the FDIC said.
The FDIC study warned banks to keep a close eye on their funds and make sure problems do not pose a risk to the bank and its insured deposits.
Only one money market mutual fund has ever failed -- in 1994, when interest rates rose by 1.25 percent in two months -- but a few others have needed bailouts from their parent firms.
