INVESTMENTS: STARTING SMALL. There's more to saving than a good rate

YOU thought that merely saving a little money was tough. Until you had to decide what to do with it. Suddenly, there are an awful lot of options out there, and a wide variety of institutions hankering for your money. The temptation to run to the nearest bank, plop the money in a nice safe passbook account, and forget about it is probably overwhelming.

But you can hardly afford to let your money stagnate. Some initial scouting should turn up an institution that offers accounts that will work as hard for this money as you have.

Because every financial institution is not equal, look for the best possible rates, the lowest charges, and a certain amount of convenience from banks, savings and loan associations, or credit unions:

Services. Check the institution's current list of services offered to find out how well it competes with others in meeting your particular needs. Look for diversity.

Cost. Ask what the charges are, when they are imposed and how and when the customer is notified of changes. Try to keep fees to a minimum.

Convenience and size. Accessibility to the institution as well as speed and courtesy of personnel are important considerations if you are interested in the institution's ability to respond to you as an individual.

Stability. Look at the institution's ``statement of condition,'' if it's a privately-held bank, or its annual report to stockholders, if publicly owned. And make sure the institution's deposits are federally insured. (The Federal Deposit Insurance Corporation for banks, the Federal Savings and Loan Insurance Corporation for savings and loans, and the National Credit Union Share Insurance Fund for credit unions will protect all deposits up to $100,000 in any one person's name.)

Financial planners generally agree that it's unwise to open an account in a privately insured institution unless it is qualified to borrow from the Federal Reserve Board in an emergency.

Interest rates. Look for an institution that compounds interest on a daily rather than monthly, quarterly, or semiannual basis. You will get a much better return on your account. If you can't find this in your your home town or state it may be worth looking elsewhere.

Check the fine print

Above all, financial advisers insist, check the fine print. Important details are often well hidden. And there still is a vast difference between all the available institutions, says Elizabeth Fowler, a financial writer and author of ``Every Woman's Guide to Profitable Investing.''

While banks offer the widest range of financial services available under one roof - and shopping at only one bank or ``financial supermarket'' may be convenient - it is possible to get better deals by looking elsewhere. Some people have found this strengthens their privacy, while others say you ``miss out by not exploring other options.''

And an annual survey of the Consumer Federation of America and San Francisco Consumer Action, reports that banks are charging Americans more fees and paying them less interest. The study found that for the small saver, the best bargains were at savings & loan institutions, which consistently charged lower fees than banks.

Advantages of one-stop banking

However, other experts recommend doing most of your banking in one place to establish good credit. Not only will it help acquire loans later on, they say, if you are a big enough customer, it may also get you higher interest on your savings and lower fees on your checking account. This is especially good for someone who doesn't want to spend a lot of time thinking about money, says financial writer Peter Passell.

Of course, says Jack Blake, information director at the Credit Union National Association, ``confidence in the institution'' is crucial. He uses one credit union almost exclusively.

A recent study by American Banker showed that 64 percent of depositors questioned had equal confidence in both commercial banks and savings and loans, while 26 percent had more confidence in banks, 5 percent in savings and loans institutions, and 3 percent had no confidence in either.

While savings and loans associations were originally created to encourage savings and promote home ownership, most are barely distinguishable from commercial banks today, having diversified to include savings accounts, short- and long-term certificates of deposit, and NOW or Super NOW checking accounts.

So debate over whether there is any need to maintain a separate lending industry has intensified recently, as many S&L's have begun to stagger under the weight of increasing competition, and the FSLIC's $6 billion deficit.

But this can be good news for the saver.

To compete for the public's money, S&L's offer depositors higher rates than ordinary savings accounts. And being less expensive to maintain, they generally have fewer charges.

The role of credit unions

Credit unions are ``one of the best-kept financial secrets,'' according to Jack Blake, director of information at Credit Union National Association. Cooperatives organized by corporate or government employees, credit unions do not have to generate fees as an income source, and so the costs are relatively low.

Indeed, minimum deposit requirements are small, interest rates on loans are generally lower, and earning rates are often a whole percentage point higher than those offered by banks or thrifts, reflecting the market rate.

Because of the ``cooperative'' nature of credit unions, most have not offered a wide range of financial services, thereby remaining a ``secret,'' as Mr. Blake says. As members ask for more services, however, credit unions are becoming more full-service institutions, and their numbers are growing, says Elizabeth Fowler, a finance writer.

Larger credit unions have money market accounts as well as passbook-type accounts. And most now have networks of automatic teller machines, check-cashing privileges at local banks, mortgages, credit cards, and NOW-type accounts.

If, however, you are looking for a way to expand your money while keeping it very liquid and safe, mutual funds are one of the best ways to go, Mr. Passell says. Almost all offer IRA's as well. While the final return may not be market-high, for the diversity and safety you're getting, it's a good return, he says.

To keep risk to a minimum, look for mutual funds that invest in money market instruments, common stocks selected for appreciation, and bonds aimed at high current income. Until you understand more about investments and can diversify, it's best to avoid funds that invest in speculative stocks, commodities, gold and precious metals, and foreign stocks, or use hedging techniques.

If you're investing your IRA in a mutual fund, there's no need to use a tax-free fund since IRAs are tax sheltered already, and such funds tend to pay a slightly lower return than taxable funds.

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