Will This Wall Street Move Save Your Savings? – Goldman Sachs Group, Inc. (GS), General Electric Company (GE)

The best fix?
But earlier this week, money-fund giant Fidelity suggested imposing a 1% redemption fee under certain circumstances on the large financial institutions that invest in their institutional money market funds. The fee would take effect only during stressful financial periods during which liquidity was scarce, as happened with the Reserve Primary Fund during the financial crisis.

The smart thing about the Fidelity proposal is that it pins the blame squarely on the big institutions that can actually cause problems. It avoids leaving individual investors holding the bag for those institutions, which is the fairer result given that individuals don’t have large enough holdings to have a true influence on overall fund liquidity.

Of course, that fact may itself draw controversy. For JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS), and other money-fund companies with a focus on institutional clients, imposing a redemption fee voluntarily could dissuade their customers from using them as managers, pushing them to other providers. But for more retail-oriented fund managers, the benefits of essentially leaving their customers alone are indisputably favorable.

The right answer for you
For now, investors shouldn’t really care about money market funds, because they shouldn’t be investing in them. Major banks Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) have profited in part during the recovery from the financial crisis by paying insignificant rates to depositors on their savings accounts, but the fact that those accounts are FDIC-insured gives them a level of protection beyond what money market mutual funds offer. Some institutions, including General Electric Company (NYSE:GE)‘s banking unit, pay somewhat higher rates that leave money market funds in the dust.

With systemic risk and near-zero interest, money market funds aren’t worth investing in right now. As such, let institutional investors desperate to preserve capital in any way they can find figure out how to keep them alive during the next crisis.

The article Will This Wall Street Move Save Your Savings? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of Bank of America, General Electric, JPMorgan Chase, and Wells Fargo.

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