The Federal Reserve has pushed interest rates as close to zero as is possible. While on the surface, you might think “Wow, free money!”, this policy has many unintended consequences.
One that is likely to hit you personally in the near future involves Money Market funds. These are the funds sold by mutual fund families, that are typically used to “park” investment money while people are deciding what to do.
With short term treasury bills offering essentially no interest (the rates have gone negative a few days), money market funds have a serious problem. If they invest their money in short term “safe” investments (like lending it to Lehman Brothers), they risk finding out their $1/share product is not worth $1 (“breaking the buck”), and they have very little cushion to “absorb” unexpected losses.
If they invest 100% in short term US Treasury bills, they have no risk – but also no income. The meager income would be less than what they have to charge to manage the fund, and people are unlikely to park money in a fund where they are guaranteed to lose money.
If they invest their funds in slightly longer treasury securities to get better yields, they risk being unable to deal with a surge of withdrawals without realizing losses by dumping the T-Bills/notes before maturity.
Look for money market funds to begin to shut down or stop accepting new money if this interest rate environment continues for much longer. This isn’t because they are “insolvent”, it is because there is no way to make money doing this. Unless you’re the government, you can’t afford to throw away money doing things for no purpose.