In search of high yields - investing in money market funds and other cash equivalents - Brief Article

Black Enterprise, April, 1999

Money funds, CDs provide a stash for your cash

With such vigorous returns from the stock market, you're probably wondering why anyone would suggest that you park your hard-earned dollars in a money fund. Deborah Frazier, vice president and senior financial consultant of Merrill Lynch's Private Client Group, says: "Some clients think that [if] they have 50% in growth stocks and 50% in the money market, they are diversified. I advise [my clients] against taking large positions in money market funds."

But that doesn't mean that you should shun the instruments and other cash equivalents altogether. Depending on your age, investment goals and risk-tolerance level, experts advise that you place at least 5% to 20% in cash. (See asset allocation in this section.) And financial planners maintain that you should have 3-6 months of cash and cash equivalents--your checking account, savings account, certificates of deposits and such--on hand for emergencies. According to Ilyce R. Glink, the author of 100 Questions You Should Ask About Your Personal Finances (Random House, $19), you should move enough money into your noninterest-bearing checking account to pay your bills, while a larger reserve should be kept in money market accounts--preferably those found at mutual fund companies--to gain a higher rate of return.

Despite all the hoopla about stocks, money funds are still fairly popular. According to Ashland, Massachusetts-based IBC Money Fund Report, assets of the 898 taxable funds rose $5.3 billion to $1.2 trillion in late January. On average, the taxable fund investments, which include short-term commercial paper and Treasury bills, mature in 54 days while tax-free funds have an average maturity of 42 days.

So if you err on the ultra-conservative side, they provide safety in an uncertain world. Like a value fund manager storing reserves, you should use money market funds, CDs and the like to provide an interest-bearing mattress to stash your cash under while you wait to pounce on the next opportunity. Remember that if you put your money in a CD, you can't touch it until the maturity date or risk a huge penalty for early withdrawal.

In order to figure out how to get the best return for your buck, we have identified the top-yielding money market mutual funds and certificates of deposits. Be selective. Keep in mind that even though inflation is at a miniscule 1.5%, it can still eat up some of your return. Moreover, look for those funds that have waived a portion of their fees.

Top-Yielding Money Market Funds

                           Recent       Min.
Taxable                 7-Day Yield    Invest.

Strong Investors           5.28%       $ 1,000
Olde Premium Plus          5.09         25,000
Wilmington Trust           5.02         10,000
Summit Cash Reserves       5.00         No Fee
National Average           4.47

Tax-Free

Strong Municipal           3.10%        $2,500
USAA Tax Exempt            2.88          3,000

Vanguard Tax Exempt        2.86          3,000
Boston 1784 Tax-Free       2.84          1,000
National Average           2.45

                                                Toll-Free
Taxable                 Web Address              Number

Strong Investors        strong-funds.com       800-368-3863
Olde Premium Plus       olde.com               800-872-6533
Wilmington Trust        wilmingtontrust.com    800-254-3948
Summit Cash Reserves    troweprice.com         609-282-2800
National Average

Tax-Free

Strong Municipal        strong-funds.com       800-368-3863
USAA Tax Exempt         utsystem.edu/ohr/      800-531-8448
                        orp/usaa.htm
Vanguard Tax Exempt     vanguard.com           800-662-7447
Boston 1784 Tax-Free    bankboston.com         800-252-1784
National Average

Represents that all or a portion of fund's expenses are currently being waived or reimbursed.

Source: IBC's Money Fund Report

Top-Yielding Certificates of Deposit

                         Annual       Min.
6-Month                  Yield       Invest.

Providian (N.H.)          5.21%      10,000
Providian (Utah)          5.21       10,000
Arkansas National         5.20       10,000
Net. Bank (Georgia)       5.20        2,000
National Average          4.14

1-Year

Providian (N.H.)          5.30%      10,000
Advanta (Delware)         5.30       10,000
Providian (Utah)          5.30       10,000
Arkansas National         5.25       10,000
National Average          4.29

5-Year

Capital One (Virginia)    6.62%      10,000
Providian (N.H.)          6.62       10,000
Providian (Utah)          6.62       10,000
Key Bank (New York)       6.33        6,000
National Average          4.49

                                             Toll-Free
6-Month                   Web Address       Number

Providian (N.H.)          providian.com     800-414-9692
Providian (Utah)          providian.com     800-414-9693
Arkansas National         arknatl.com       501-271-2800
Net. Bank (Georgia)       netbank.com       888-256-6932
National Average

1-Year

Providian (N.H.)          providian.com     800-414-9692
Advanta (Delware)         advanta.com       800-441-7306
Providian (Utah)          providian.com     800-414-9693
Arkansas National         arknatl.com       501-271-2800
National Average

5-Year

Capital One (Virginia)    capitalone.com    800-564-7426
Providian (N.H.)          providian.com     800-414-9692
Providian (Utah)          providian.com     800-414-9693
Key Bank (New York)       keybank.com       800-538-8303
National Average