Not to be outdone, Merrill Lynch has a counteroffer

When banks start to offer their own version of money-market mutual funds on Dec. 14, their secret weapon will be the word ''insured.'' The banks will be able to advertise their funds are insured by the Federal Savings and Loan Insurance Corporation (FSLIC) or the Federal Deposit Insurance Corporation (FDIC). Money-market mutual funds offered by brokers or mutual-fund groups are not insured.

Now, Merrill Lynch & Co., the nation's largest stockbroker, has developed a new product some analysts claim will be a potent weapon against the banks' funds.

Starting Dec. 8, Merrill Lynch will offer to its customers the ability to buy a piece of an insured, six-month ''jumbo'' certificate of deposit (CD) issued by a major bank or thrift institution. For as little as $1,000, Merrill Lynch customers will be able to buy a piece of a CD worth over $100,000. (The thrifts, in comparison, have a minimum deposit of $2,500.) Because the CD is large, the banks will pay higher interest rates than they would for a CD worth $100,000 or less. The FSLIC considers participation in a jumbo certificate the same as if the investor had bought the entire CD from the thrift institution.

According to Edwin H. Hall Jr., vice-president and director of the investment product marketing division at Merrill Lynch, the broker will initially market certificates from California Federal Savings & Loan in Los Angeles, Coast Federal Savings & Loan in San Diego, and First Michigan Saving & Loan in Detroit. Eventually the program will involve more banks, he says. The thrifts are willing to deal with Merrill Lynch because the big broker has the ability to raise large sums of money quickly through its huge chain of offices.

For the first 30 days, Merrill Lynch will guarantee the interest rate at 9 percent. After that the rate will float and will be set at the end of each 30 -day period at 0.25 percent above the Donoghue Money Market Fund average. This average, which Merrill Lynch is licensed to use, is posted regularly in the newspapers. There will be no penalty for early withdrawal from the CD, and Merrill Lynch intends to maintain a secondary market in the CDs, allowing investors to buy or sell them the same as they would a stock or a bond. There will be no fees for the customer. Merrill Lynch will receive a fee from the issuing institution, which will not affect the yield to the customer.

Lisa Sheeran, editor of Donoghue's Money Letter, says if the Merrill Lynch product offers a yield of a quarter percent above Donoghue's average, ''it sounds more competitive than the new bank products.'' One thrift lawyer notes the Merrill Lynch plan ''would definitely be superior'' to the plan offered by banks.