PHILADELPHIA -- You can earn higher interest on a free checking account without having to maintain high minimum balances to avoid hefty bank fees.
This alternative checking account pays up to 1 percent higher interest than most banks, yet it costs less.
The alternative: certain money-market mutual funds that offer unlimited checking without fees or balance requirements. They let you write as many checks as you want and for any amount, no matter how small.
But money-market accounts also have disadvantages. They involve trade-offs in safety and convenience that may limit them as real alternatives to bank checking accounts. To get the highest rates, many funds require that checks be for a minimum of $250 to $500, which would require most consumers to keep a bank account to pay bills.
There is also the issue of convenience. Money funds don't offer neighborhood branches or automated teller machines where customers can deposit checks or get cash.
Most fund customers have to mail deposits, although some funds offer direct deposit for paychecks and automatic debit from bank accounts. If they don't have a bank account, most customers can only get cash through a credit union, supermarket or other business willing to cash personal checks on their money fund.
Security is another issue. Bank checking accounts are federally insured up to $100,000, while money-market funds aren't. But consumer advocates say money-market funds are relatively safe, given that no major fund has ever gone bankrupt.
Money funds that invest only in government-backed securities with short maturities offer nearly as much safety as bank accounts, according to Robert Krughoff, president of Consumers' Checkbook, a Washington-based consumer magazine.