Use money fund for checking, eliminate fees

STAYING AHEAD

June 13, 1993|By JANE BRYANT QUINN | JANE BRYANT QUINN,1993, Washington Post Writers Group

New York -- Are you sick of the fees laid on your ban checking account? Tired of paying more in monthly charges than you're earning on your deposits? Then think about switching your account to a money-market mutual fund. Your rate of interest changes daily, in line with general market trends. These funds can offer you free checking plus a higher rate of interest than you're getting now.

A money-market fund works very much like a variable-rate bank account. Every dollar you invest can be retrieved, with no loss of capital.

Money funds carry no federal deposit insurance. So you're trusting the sponsor to manage its cash responsibly. Only twice in their 20-year history have there been instances when money funds hit the skids, and both times their sponsors bailed them out. I won't kid you by saying that these funds are perfectly safe. But for me, they're safe enough. Nearly $557 billion now rests in these accounts, most of it from sophisticated people who see no risk worth worrying about.

Of 866 money-market funds, more than half offer check-writing privileges, according to IBC/Donoghue's Money Fund Directory in Ashland, Mass. But most of these funds aren't practical for everyday use. The minimum check you can write is usually $100 or more.

Fortunately, some money funds will handle checks of any amount, no matter how small. A stock brokerage firm, for example, may offer such an account to its customers.

Other funds will accept all comers. They process checks of any size, pay the same or higher rates of interest than the average bank checking account, charge fewer fees and charge zero if your account falls below the minimum balance. You can bank with them by mail. They can also arrange to have your paycheck deposited directly to your account. Three to try:

* Boston Co.'s Cash Management Fund in Boston ([800] 225-5267). You can write as many checks as you like, at no cost. Recent seven-day compounded yield: 2.5 percent. To open an account, you need $1,000 or automatic payments of $100 a month.

In theory, your account can be closed if it falls below $500; in practice that hasn't happened, although the firm is thinking about it, says the Boston Co.'s product manager, Dennis Gallant. Checks are printed free and canceled checks returned monthly. If you have an American Express card, you can even tap your account through an ATM.

* Midwest Short Term Government Income Fund in Cincinnati ([800] 543-8721). You can write six free checks a month; after that, each one costs 25 cents. Recent seven-day yield: 2.2 percent. Accounts can be opened with $1,000 or with automatic deposits of $50 a month. There's no minimum account balance. Checks are printed free and canceled checks returned monthly. Typical period for checks to be held: 14 days.

* FBL Money Market Fund in West Des Moines ([800] 247-4170). You get unlimited "drafts" (the equivalent of checks). Current seven-day yield: nearly 2 percent. It only takes $500 to open an account. No minimum balance is required. You get a check statement every month but normally not the canceled checks (copies of up to five canceled checks can be ordered free; after that, there's a $3 charge for each copy). The cost of printing 175 checks: $12.

There are drawbacks to these funds, in addition to the lack of federal insurance.

First and most important, deposits may be held for 10 to 15 days before you can draw checks against them. By contrast, banks generally hold deposits for only one to five days. Ask the fund specifically what its practices are.

Second, most money-market funds don't offer access to ATMs. Nor is there a local bank that will cash your check. You can probably cash modest checks at a supermarket. But in general, these accounts are for paying bills rather than dispensing cash.

Third, you can't get a line of credit. If you write a check for more than you have in your account, it will bounce.

For these reasons, money-fund checking accounts don't appeal to everyone. But they're great money savers if they suit your style.

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