Quinn: Safety in Money-Market Funds

On Wall Street, securities once thought to be safe are falling apart. Triple-A mortgage-backed bonds plunged in value last month, big banks stumbled and stocks are zigzagging wildly. Last week the world's central banks unveiled a plan to inject $90 billion in new capital into the markets in hopes of calming the panic. The "safe savings" of individuals, however, are doing fine. You're even getting some benefit from the market's pain.

Take FDIC-insured bank accounts. Savers scampered out of banks owned by Countrywide Financial and E*Trade Financial that took a beating on their subprime mortgage loans. To win back deposits, they're now offering the highest interest rates in the market. E*Trade pays 5.05 percent with no minimums and no annual fees. That compares with 4.2 percent at ING Orange online and 0.2 percent for regular savings at the Bank of America. Countrywide offers 5.3 percent on $10,000 accounts.

You can also have confidence in your money-market mutual fund, despite the chatter that some of them hold bad investments. Money funds aren't insured. Their reputation for safety rests on always giving you a dollar back (plus interest) for every dollar you put in. Some funds did indeed invest in commercial paper connected indirectly with defaulting subprime loans. But here, investors have a safety net. Money-fund sponsors will spend whatever it takes to keep your money safe.

So far, seven sponsors are known to have supported their funds, says Peter Crane of Crane Data, which tracks the industry. They're blue-chip names: Bank of America (Columbia funds), Wachovia (Evergreen funds), Credit Suisse, First American (a unit of U.S. Bancorp), Legg Mason, SEI Investments and SunTrust Bank. They bought the troubled paper out of their funds or backed it with bank letters of credit. As a result, investors got a double win: they earned slightly higher yields, thanks to those riskier investments, and they got bailed out when the risks piled up.

Other types of investments, thought to be safe, have indeed lost money. They're the "enhanced cash" or "cash plus" funds peddled to institutions. General Electric's Trust Enhanced Cash Fund, for example, was repaying 96 cents on the dollar. One of Bank of America's funds, Strategic Cash, stopped honoring withdrawals. There's no reason for individuals to seek out any cash or bond fund called "enhanced." It might yield 0.25 to 0.75 percent more than the unenhanced version, says Connie Bugbee of Moneynet, which tracks returns. On $10,000, that's $25 to $75 a year. Why would you bother?

The subprime debacle is creating bargains in tax-free municipal bonds. About half of all munis are backed by an insurance policy. If the bonds don't pay on time, the insurer will step in. To cover the cost of insurance, you typically give up 0.25 to 0.5 percent in yield.

These same insurers also guarantee subprime mortgage securities. Ambac Financial, MBIA and Security Capital, for example, face potential losses large enough to cost them their Triple-A safety ratings. In that case, the munis they insure would lose market value, too.

Some institutional investors have been dumping insured munis. That makes them unusually cheap, "so we'd be buyers now," says John Miller, chief investment officer of Nuveen Investments. MBIA got a capital infusion last week that shored up its position. Insured 30-year munis are yielding up to 4.9 percent tax-free to residents of the issuing state. That's more than you'd net from comparable taxable Treasuries. Ten-year munis are at 4.15 percent.

Stocks are another matter. If we're in a recession, they'll drop some more. If not, they'll catch hold and run up. The craziness reminds you that safety is part of investing, too.