Good evening. Charles Schwab & Co. has issued a 3-pager describing how their money market funds are built to handle potentialities during unusual market conditions.
In short, the Schwab Value Advantage Money Fund (SWVXX) should be free of volatility and a safe haven for cash, but it could go down in value under extreme circumstances.
The fund aims to maintain exactly $1.00 per share and pay interest that is reinvested. That way there would be no up or down price movements of the fund's share price, and growth would be provided by reinvestment of the interest. But it is possible that negative interest rates (a rare situation but possible now) would result in the fund indeed going down in value. While this is highly unlikely (I heard of only one instance during the 2008 financial crisis), it could happen.
To avoid that, the fund has the options to a) restrict redemptions for up to 10 days, and/or b) charge up to 2% redemption fee. Either option, if implemented, would limit outflows and buy time for the fund to ride out any temporarily extreme liquidation issues.
My take: SWVXX could lose investors money, but it is the next-safest place for cash after FDIC-insured bank deposits. The federal government may backstop money market funds, and Schwab could potentially self-fund to keep the fund at $1.00 and liquid enough. But none of that is guaranteed.
Cash and Cash Alternatives
Safest: Bank Deposit Sweep (default, automatic cash position in your Schwab and similar accounts)
2nd Safest: Money Market Fund
3rd Safest: Short-term and Ultrashort-term bond funds