NEW YORK -- Money-market mutual funds are showing signs of replacing banks as safe havens for consumer funds.
As war clouds gathered this year, assets of the nation's 531 non-bank money funds have swollen as depositors scramble for relief from volatile financial markets.
Some types of retail deposits at commercial banks also have grown, but their gains were dwarfed by those of the money-market funds, despite the money funds' inability to offer the $100,000 deposit-insurance protection available to bank customers.
Many banks are shrinking and may not mind the slower rate of deposit growth in a weak economy with limited loan demand.
As of last week, bank money-market accounts were paying an average 5.83 percent annual yield, according to Bank Rate Monitor.
That was 1.32 percentage points less than the Donoghue money fund average, a spread that had been consistent for months. But when money fund yields rose in early January, bank rates did not budge.
The growth in money-fund deposits raises the possibility that they are appropriating the banks' traditional image as a safe haven.
In the week that ended Jan. 9, money funds showed a net gain of $16.4 billion, a record for the weekly statistics kept by the Investment Company Institute in Washington.
Much of the gain, to a total of $438.4 billion, was in institutional money, but $2.6 billion flowed into general-purpose funds, the kind most competitive with such bank products as certificates of deposit and money-market accounts.
In the week that ended Jan. 7, Federal Reserve statistics show, commercial banks' money-market deposit accounts shrank by $100 million, to $375 billion. The banks showed a gain of $4.4 billion in time deposits of $100,000 or more, but the total of $388.6 billion was still well below the 1990 peak of $401.6 billion, reached last January.
Some industry observers said the increasing advantage of money funds reflects the declining stature of the banking industry in many consumers' minds.
"The average consumer is saying a lot of bank senior management got paid a lot of money for making a lot of poor decisions," said Daniel Beatty, a financial planner at John W. Booker and Co. in Oakland, Calif. "The average person is saying that's not right."
Many brokerage houses automatically sweep their clients' idle cash, which may result from securities sales, into a money fund. Gary Ciminero, an economist at Fleet/Norstar Financial Group in Providence, R.I., said he thinks that activity is fueling much of the asset growth in money funds.
"It's false to say that people are pulling money from banks and putting them into money-market mutual funds," Mr. Ciminero said. "It has more to do with people fleeing the stock market."