By Brian O’Connell
Uncle Sam has come to the rescue of money market mutual fund investors, but that’s not stopping yield-hungry investors from heading out the door in search of better returns.

Last week, the U.S. Treasury Department announced that it would extend its guarantee on money market funds for participating mutual fund companies linked to the Treasury Guarantee program. That program was launched in September, 2008, in the wake of the collapse of Lehman Brothers, which triggered a domino effect that led to an investor run on money market funds. The idea was to provide short-term relief to money market investors, using $50 billion in federal bailout money to guarantee the principal in money market funds.

But this week finds more grim news for money market fund investors, with the seven-day average yield for such funds falling to 0.21% last week. That’s a far cry from the 0.53% yields that investors can get from bank money market accounts.

Perhaps that’s why the herd is stampeding away from money market funds. According to the investment Company Institute, total money market mutual fund assets fell by $28.49 billion last week to $3.818 trillion.

But the U.S. government is taking no chances in insuring that money market fund assets are fully protected, even though mutual funds are historically not guaranteed by the federal government. The original Treasury Guarantee program, set to expire on April 30 was in fact an extension, too – the original expiration date for the Treasury Guarantee program was December 30, 2009. The latest extension grants a six-month reprieve for money market funds, with a new expiration date of September 18, 2009.

A warning though for money market fund investors is to not assume that your fund is covered by Uncle Sam. The Treasury is only guaranteeing asset coverage for mutual fund programs that are participating in the Treasury Guarantee program. But participation is optional, and there’s a decent chance that your money market fund company may not be covered.

Your best bet? Check BankingMyWay’s Money Market Rate search engine to find the best deals on bank money market yields.

If you stay with your money market fund, due the Due diligence by calling your fund company to find out for sure whether you’re covered or not.  After all, better safe than sorry.

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