Your money market mutual fund is safe, for now

— -- Q: Is there danger of losing money if an investor is simply riding along with money market funds right now?

A: Money market funds are usually safe. And that's never been more true. I'll explain why in a bit.

But first, understand what money market funds are and what they are not. Money market mutual funds are extremely safe places to park money. They invest in highly rated short-term debt issued by companies and governments that can be quickly turned into cash. These types of borrowers don't usually default.

But, with that said, sometimes they do. The Reserve Primary money market fund recently "broke the buck" when it said investors would get back only 97 cents of every $1 they had deposited. The fund, one of the largest and oldest money market funds, had invested in Lehman Bros. debt, which became worthless when Lehman filed for bankruptcy.

Another critical thing to understand is that normally, and I'll explain why I'm saying "normally" later, money market funds are not insured by the government. Deposits in banks are insured by the Federal Deposit Insurance Corp. (FDIC). This is a key difference you should remember.

As we all know, things are not "normal" right now in the financial world. In an emergency order late last month, the U.S. Treasury said it was opening a temporary guarantee program under which money market funds can buy federal insurance. They took the action to prevent a rush of customers withdrawing their money from all kinds of funds after The Reserve fund broke the buck.

You'll want to contact the provider of your money market fund and ask if they are in the program.

So here's the bottom line. Money market funds that joined the government's guarantee program are temporarily as safe as insured bank accounts.

But when that program ends, you need to separate bank accounts and money market funds in your mind. Bank accounts that are insured by the FDIC are about the safest place you can put your money. Money markets, while usually quite safe, are exposed to risk, especially during times of financial stress, as we're seeing now.