Understanding Investments: Stable Value vs. Money Markets
Key Takeaway
The following is a chart citing the primary differences between stable value, money market, and Alerus Money Market accounts.
| Features | Stable Value | Money Market | Alerus Money Market |
|---|---|---|---|
| Underlying Investments | Can vary by fund. Most funds are similar to a diversified short-term bond portfolio with average maturity between 2 and 5 years. | Short-term interest paying securities. Regulated so average maturity is under 60 days. | Does not have underlying holdings. Alerus Money Market is a deposit account with Alerus Financial, N.A. |
| Fees | Funds charge an expense ratio to manage underlying investments and pay for insurance from one or more financial institution. | Funds charge an expense ratio to manage underlying investments. | Alerus collects a “spread” between the interest rate paid on Money Market deposits and the interest rate or other income derived from loans and investments. |
| Trading Restrictions | Funds typically do not have restrictions at the participant level, however, many (but not all) funds require 12 months of advance notice before removal from the plan. | U.S. Government Money Market funds have no restrictions. Prime Money Market funds can require up to 10 days’ notice prior to withdrawal and enforce fees up to 2%. | Although there are not any immediate plans to do so, Alerus reserves the right to require 7 days’ notice prior to withdrawal from the Money Market. |
| Principal Protection | Funds are required to have insurance from a single or multiple financial institutions to protect principal. | U.S. Government Money Market funds normally invest at least 99.5% in cash, U.S. Government securities, and repurchase agreements to protect principal. | FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, up to $250,000 per participant. |
| Competing Fund Clause | Money Market and short-term bond funds typically cannot be held when a plan holds a Stable Value fund. | No competing fund clause. | No competing fund clause. |