Vanguard Prime Money Market -- risk of failure?

Question

A friend of mine's mother has nearly $300,000 in a Vanguard Money Market account (a large portion of her retirement). She also probably has $100,000 in other Vanguard funds. With everything going on, she is concerned about its safety. She asked me if she should withdrawl that $300,000 and split it among 3-4 savings accounts at different banks so she is under $100,000 in each and FDIC insured.

Is this something she should do?

Answer 1

Your friend's accounts at Vanguard are not FDIC insured.

And your friend doesn't have a money market account. She has a money market FUND at Vanguard. two very different things.

Vanguard is SIPC insured. SIPC insurance coverage is $500,000.

Why is your "friend" worried about Vanguard failing anyway? Vanguard doesn't make loans.

Answer 2

The risk of default in a money market account, especially at a major company like Vanguard, is extremely low.  She could get that little extra bit of safety by putting the money in several banks, but I expect that she will receive a lower rate of return and have fewer investment choices.  

There are other ways to look for safety and not give up return, such as going into a short-term U.S. Treasury fund at Vanguard.  She should look again at the asset allocation in the account; this is heavy concentration in money market funds, which are not even beating inflation.  This is another type of risk, which is not hard to avoid.

Answer 3

If the 300,000 is only a portion of her retirement than i'd say she is in a good posistion to use that money as she see's fit. The prime money market looks to be quite stable right now but there is never any gaurentees. My cousin is a broker and he suggests putting the money (because it is a sizeable sum) Into low risk savings accounts, she will still see a return on her money and she will have the peice of mind that the vanguard can't offer her. In the end He says don't mess ith a sure thing, it's his motto and he's been in buisness for 15 years so who knows. But good luck.