Indian_Eyess
September 10th, 2006, 03:47 PM
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Don't neglect your cash investments
By Linda Stern Sat Sep 2, 7:35 PM ET
WASHINGTON (Reuters) - Stop treating your cash like trash. With yields on money market mutual funds pushing 5 percent, it's time to stop ignoring the returns you're getting on the money you have saved for a rainy day.
"People forgot about their cash, and a lot of people are still forgetting it," says Reserve Funds Chairman Bruce Bent, the person generally credited with inventing the money market mutual fund.
"There are billions and billions (of dollars) earning less than 1 percent, and additional billions earning less than 3 percent," Bent said in a recent interview. "It is stupid. It is a total waste of money."
Yields have been low because the Federal Reserve had cut short-term interest rates to an all-time low two years ago. After a series of rate hikes since then, the short-term target interest rate has climbed to 5.25 percent from a flat 1 percent.
But the returns on many short-term accounts haven't gone up as quickly. The average interest-bearing checking account is yielding 1.22 percent, and banks' money market deposit accounts are averaging 3.33 percent, according to Bankrate.com. Brokerage firm sweep accounts are averaging 3.76 percent, according to Crane Data, a Westboro, Massachusetts, research firm.
Meanwhile, taxable money funds are yielding 4.96 percent.
Banks have not raised rates aggressively because they haven't had to. Their customers either like the convenience of keeping their money in those accounts or haven't bothered to find out how much they could earn elsewhere. And many brokerage firms have started automatically sweeping client cash into bank accounts that they run and which pay less than more aggressive money funds.
This is a good time for investors to take another look at where they put their cash, given the large disparities in the interest rates offered by one institution over another. And investors disgusted by the stock market's lousy summer performance have been keeping greater amounts of their money in cash investments.
Here are some pointers for finding the best place for your cash.
-- Do your own sweeping. Those brokers that are paying around 3 percent for their automatic sweep accounts typically offer other accounts that yield closer to 5 percent. You just have to buy them and move the money into them yourself. If you have a significant amount sitting in a brokerage sweep account, find out how much it pays and what else the firm offers.
-- Consider the total sums before you put too much work in it. A difference of 1 percent yield won't make that much difference in your life until you have more than $10,000 in your account, and even then, it's only $100 a year. But if you've got more money than that stored as cash, or can find a rate that's more than 1 percentage point better than what you're earning, it might be worth the move.
-- Don't give up much yield for insurance from the Federal Deposit Insurance Corp. Money market expert Peter Crane says you don't even need it: A money fund has never failed to protect its shareholders' principal and never will unless the entire economy melts down.
But many brokers and firms like Bent's do offer brokered money market deposits that do carry FDIC insurance. He says the difference in yield is negligible between the FDIC-insured fund and the money funds he offers.
If you want FDIC insurance just to help you sleep at night, hunt for a brokered deposit that pays a competitive rate. Some of the online banks, like http://www.emigrant.com/ and http://www.ingdirect.com/ are offering rates as high or higher than traditional money market funds.
-- Consider your tax situation. It's easy to tell whether you're better off with a taxable or tax-free money fund. If you're in a high tax bracket, use an online taxable/tax-free equivalent calculator, like the one at http://www.investinginbonds.com/, to see which works better for you. Find comparable yields for taxable and tax-free money funds at http://www.imoneynet.com/ or http://www.cranedata.us/.
-- Match the fund with the money's intent. If you have money in cash because you're waiting for an opportunity to buy stocks or mutual funds, keep it in a money fund that you buy through your brokerage account. That way you'll be able to move it over immediately to take advantage of that buying opportunity.
If you're keeping other money in cash for a rainy day and don't expect to tap it regularly, search for the fund that offers the best yield, even if it's less convenient than your local bank or broker. If you want to squeeze the most yield possible out of your everyday cash, look for a money fund that doesn't limit withdrawals or check-writing and gives you an ATM card that you can use for the account.
http://news.yahoo.com/s/nm/20060902/bs_nm/column_investing_dc;_ylt=AoO_IdpFwar4b6DNm8Hcg4KBG LMF;_ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--
Don't neglect your cash investments
By Linda Stern Sat Sep 2, 7:35 PM ET
WASHINGTON (Reuters) - Stop treating your cash like trash. With yields on money market mutual funds pushing 5 percent, it's time to stop ignoring the returns you're getting on the money you have saved for a rainy day.
"People forgot about their cash, and a lot of people are still forgetting it," says Reserve Funds Chairman Bruce Bent, the person generally credited with inventing the money market mutual fund.
"There are billions and billions (of dollars) earning less than 1 percent, and additional billions earning less than 3 percent," Bent said in a recent interview. "It is stupid. It is a total waste of money."
Yields have been low because the Federal Reserve had cut short-term interest rates to an all-time low two years ago. After a series of rate hikes since then, the short-term target interest rate has climbed to 5.25 percent from a flat 1 percent.
But the returns on many short-term accounts haven't gone up as quickly. The average interest-bearing checking account is yielding 1.22 percent, and banks' money market deposit accounts are averaging 3.33 percent, according to Bankrate.com. Brokerage firm sweep accounts are averaging 3.76 percent, according to Crane Data, a Westboro, Massachusetts, research firm.
Meanwhile, taxable money funds are yielding 4.96 percent.
Banks have not raised rates aggressively because they haven't had to. Their customers either like the convenience of keeping their money in those accounts or haven't bothered to find out how much they could earn elsewhere. And many brokerage firms have started automatically sweeping client cash into bank accounts that they run and which pay less than more aggressive money funds.
This is a good time for investors to take another look at where they put their cash, given the large disparities in the interest rates offered by one institution over another. And investors disgusted by the stock market's lousy summer performance have been keeping greater amounts of their money in cash investments.
Here are some pointers for finding the best place for your cash.
-- Do your own sweeping. Those brokers that are paying around 3 percent for their automatic sweep accounts typically offer other accounts that yield closer to 5 percent. You just have to buy them and move the money into them yourself. If you have a significant amount sitting in a brokerage sweep account, find out how much it pays and what else the firm offers.
-- Consider the total sums before you put too much work in it. A difference of 1 percent yield won't make that much difference in your life until you have more than $10,000 in your account, and even then, it's only $100 a year. But if you've got more money than that stored as cash, or can find a rate that's more than 1 percentage point better than what you're earning, it might be worth the move.
-- Don't give up much yield for insurance from the Federal Deposit Insurance Corp. Money market expert Peter Crane says you don't even need it: A money fund has never failed to protect its shareholders' principal and never will unless the entire economy melts down.
But many brokers and firms like Bent's do offer brokered money market deposits that do carry FDIC insurance. He says the difference in yield is negligible between the FDIC-insured fund and the money funds he offers.
If you want FDIC insurance just to help you sleep at night, hunt for a brokered deposit that pays a competitive rate. Some of the online banks, like http://www.emigrant.com/ and http://www.ingdirect.com/ are offering rates as high or higher than traditional money market funds.
-- Consider your tax situation. It's easy to tell whether you're better off with a taxable or tax-free money fund. If you're in a high tax bracket, use an online taxable/tax-free equivalent calculator, like the one at http://www.investinginbonds.com/, to see which works better for you. Find comparable yields for taxable and tax-free money funds at http://www.imoneynet.com/ or http://www.cranedata.us/.
-- Match the fund with the money's intent. If you have money in cash because you're waiting for an opportunity to buy stocks or mutual funds, keep it in a money fund that you buy through your brokerage account. That way you'll be able to move it over immediately to take advantage of that buying opportunity.
If you're keeping other money in cash for a rainy day and don't expect to tap it regularly, search for the fund that offers the best yield, even if it's less convenient than your local bank or broker. If you want to squeeze the most yield possible out of your everyday cash, look for a money fund that doesn't limit withdrawals or check-writing and gives you an ATM card that you can use for the account.
http://news.yahoo.com/s/nm/20060902/bs_nm/column_investing_dc;_ylt=AoO_IdpFwar4b6DNm8Hcg4KBG LMF;_ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--