Money fund rules don’t leave wiggle room

Yields for the bulk of the $2.8 trillion stashed in money funds have hovered barely above zero since early last year. Yields normally ranging from 2 to 4 percent now average 0.04 percent — four bucks a year for each $10,000 invested — making currently tiny rates for bank accounts look good.

Blame goes in part to the Federal Reserve, which is keeping short-term interest rates at next to nothing to get the economy back on track. That’s left money fund managers little room to squeeze more yield by venturing into slightly riskier investments than their peers are buying. Money funds are restricted to buying the safest types of debt, such as Treasuries or short-term corporate bonds from high-quality issuers.

That wiggle room is getting even narrower because of rules the Securities and Exchange Commission is phasing in this year. The goal: ensuring money funds are true safe havens on the rare occasion when stocks, bonds, and almost everything else are tanking.

That’s what happened in September 2008, when Lehman Brothers collapsed. The bank’s demise also took down a large money fund whose investment in Lehman bonds blew up. The Reserve Primary Fund was unable to give fleeing investors a dollar back for each buck they had put in. It was the first time individual money fund investors suffered losses since Reserve Primary launched the industry in 1971. At latest count, the collapsed fund’s investors have received $50.5 billion, or 98.6 percent of the fund’s assets when it “broke the buck.’’

Still, it was a headache for investors who couldn’t access their cash while the fund was shutting down. Investors often use money funds while they’re waiting to move back into stocks, or to make a down payment on a home. Many firms also keep clients’ uninvested brokerage account balances in money funds.

Here’s a look at the rules the SEC approved in February, and the investor impact: