When the stock market turns volatile and the economy buckles, investors often look to curb some risk by moving into traditionally conservative money market funds. Not this time.

Industry data and the latest round of earnings reports from brokerages show that, although investors may not have a vast appetite for risk, money market funds aren t satisfying them either.

Investors pulled $502 billion out of money market funds in the U.S. in the first half of 2010, up from the $176 billion in outflows during the first half of 2009 and reversal from net growth in such accounts in 2008, according to Loren Fox, senior research analyst at Strategic Insight.

Brokerages are feeling the pull. Legg Mason on Monday reported outflows from money funds and other liquidity products of $14.4 billion, down about 10% from the first quarter.

Separately, discount broker Charles Schwab reported July 16 that client assets in money market funds fell by $7.9 billion, or 5%, during the second quarter.

Schwab was also among the brokerages scaling back asset management fees on its money-market funds in an effort to retain clients. In total, money funds waived about $2.5 billion in expenses during the first half of 2010, putting them on pace to eclipse the $3.6 billion in fees waived during all of 2009, according to the Investment Company Institute.

Loren Fox, research analyst with Strategic Insight, says the current exodus from money market funds may represent a continued correction after a surge that matched market s decline in 2008. All year, the markets were slowly going down. There were increasing problems in credit markets and so people were pouring money into money market funds as a safe haven.

Since then, the low interest rate environment has created very low yields on money market funds, as well as on many traditional bank accounts, undercutting their appeal, Fox says.

As of July 21, money market mutual funds held $2.97 trillion in assets, down from $3.66 trillion at the same time a year earlier and $3.52 trillion at the same time in 2008, before the market s collapse, according to data from the Investment Company Institute.

As short-term investments with low interest rates, money market accounts often represent the holding pattern between decisions to invest, says Marc Pado, chief investment strategist at Cantor Fitzgerald.

When money flows out of money market accounts and but not into equity accounts, that movement could signal investors are drawing on their savings to cope with unemployment or pay down debt and credit cards, Pado says. (Credit-card issuers raised fees and increased rates ahead of financial regulatory reform, so investors collecting less than 1% or 2% on their money market accounts may have opted to pay off credit card debt for which they were being charged 8% to 16%, for instance.)

The low rates on money market funds have been a big factor in triggering more inflows into short-term bond funds as a higher yielding alternative, Fox says.

So when will the funds come back? When investor and consumer confidence eventually improve and more money is shunted into equities, the Federal Reserve will look to start raising interest rates to head off inflation, Fox says. That will result in higher rates on money market funds, making it easier for them to retain investor money.