Credit & Money Management
Banks Trounce Money-Market Funds
Deposit accounts offer higher rates -- and a guaranteed safety net.
By Joan Goldwasser, Senior Reporter
From Kiplinger's Personal Finance magazine, September 2009
- Comments
- Email This Article
- Print This Article
- Order a Reprint
Advertisement
If you're looking to earn the highest interest rate on your stash of cash, a bank is your best bet. Some banks are paying more than 2% on their money-market deposit accounts, while taxable money-market mutual funds yield an average of only 0.12%. Plus, your savings are insured up to $250,000 per account, at least through December 2013.
For example, with a minimum deposit of just $100, you can open an Advantage Savings Account with the Bank of Internet that pays 2.5%. Andy Micheletti, the bank's chief financial officer, says that the bank is lending money at an effective rate of 6.75%, so it can afford to pay savers 2.5% and still make a profit. In addition, as an Internet-only bank, it does not have the expense of maintaining bank branches.
Yields on money-market funds remain low because they mirror the current low yields of Treasury bills and other short-term securities that make up their portfolios. Plus, investors' confidence in the safety of money-market funds was shaken last fall when Reserve Primary Fund "broke the buck" -- that is, its net asset value (NAV) fell below $1.
The Securities and Exchange Commission has proposed regulations that would establish new liquidity requirements, bolster the credit quality of the funds' portfolios and require more-frequent disclosure of fund holdings. The new rules are unlikely, however, to include a switch to a floating NAV, which would mean that individual investors could lose money. Pete Crane, editor of Crane Data, says that investors won't notice any changes when the new rules are enacted.
Tags:
Topics:
- Comments
- RSS
Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy
Reader Comments (1)
Posted by: kipreader at 09/10/2009 11:21:50 PM
I checked out the Bank of Internet that was referenced in this article to see if it might be a good place to keep the cash fund, and i was quite suprised to discover that despite the name, the Bank of Internet does not support electronic tranfers of deposits. Seriosusly. Right there on the banks own website, it says the way to deposit funds info your account is to write a paper check and sent it via snail mail. They may not be a brick and mortar bank, but they are in the virtual stone age when it comes to internet banking , I'm afraid. I did find via search and bankrate.com that there are no minimum, no fee accounts available thru Banks like Ally that offer competive rates and also do offer true online management and transfer of funds.