Assets in Stable Value Funds are Comingled and Rates of Return are Fixed
The issuers of stable value funds comingle the fund’s assets with the assets in their general business operating accounts. That’s a critical distinction with money market funds which hold and manage the fund’s assets in segregated accounts.
The stable value fund issuer uses the fund’s cash to carry out its daily activities while paying its investors a predetermined interest rate. The interest rate calculation falls at preset intervals, usually semi-annually or quarterly.
Stable value funds’ interest calculations have a “floor,” meaning the rate paid to the investor will not fall below a minimum value. The floor rate can be higher than a money market fund’s rate of return. During sustained low-interest rate environments, stable value fund’s usually out-pay money market funds.