Money market funds welcome savings bank jab

The United States savings bank industry, losing millions of dollars every month to the higher-yielding money market mutual funds, has declared war on the funds. The fund managers are delighted.

The arsenal is coming from the nation's savings and loans in the form of frequent magazine, newspaper, television, and radio advertisements. Many of the TV ads are aired in the prime time evening hours or during major sporting events , such as the recent Winter Olympics. The battle is being led by the Savings and Loan Foundation, a national organization that promotes the S&Ls' cause.

People should not be taking their money out of savings and loans, the ads say , where deposits are insured by the federal government, where interest rates are guaranteed, and where a depositor does not have to worry about watching their investment dwindle. People also should be keeping their money in these institutions because they are the main source of mortgage money for those who want to purchase that "dream house."

The advertising campaign began in earv nest shortly after the first of the year. Judging from the sales figures of the money funds, one would think the fund managers had dreamed it up themselves.

"They love it," William E. Donoghue, publisher of Donoghue's Money Fund Report, said of the mutual funds' reaction to the ads. "The money funds have grown $15 billion since it began."

Complete figures for money fund growth since Jan. 1 are not available, but according to recent statistics by the Investment Company Institute, the mutual fund trade group, January's money market fund sales were $21 billion, or $7.8 billion larger than December, booting their net assets to $53.1 billion. Much of this money, fund spokesmen and S&L officials agree, withdrawn from the savings banks, or it was money that would have been deposited in the thrift institutions in earlier times.

"The smartest thing they [the savings institutions] can do is ignore the money funds," Mr. Donoghue continued.

Obviously, the S&Ls do not agree. "Disintermediation is a real problem," said Gail Sachetti of the marketing department at Provident Institution for Savings in Boston. Disintermediation describes the transfer of funds from a savings account to higher-yielding investments, like mutual funds. It has become the bane of S&L executives, even those who can't pronounce it.

It is too early to tell if the ads have done much good, Mrs. Sachetti said, although the Provident has seen "some new money" come in.

"We have had a goody amount of response" from member S&Ls, said Jacqueline Perkins, spokeswoman for the Savings and Loan Foundation. "Our members are very enthusiastic about the advertising." While many savings institutions are using ads supplied by the foundation, many others are writing their own, she said. However, she had not heard of any noticeable reversal in the trend the ads are supposed to stop.

The ads have helped the mutual funds, Mr. donoghue and others say, because they are appearing in places the funds have not yet placed their own promotions, including the major news magazines and on TV. Thus, they bring the term "money market fund" to an entire group of people who never heard it before. Many of these people have become curious enough about the S&L claims that they have decided to talk to both sides. When they do this, fund spokesmen say, they have a good chance of becoming a new mutual fund customer.

In some cases, the mutual funds were ready for the savings institutions' onslaught. "We anticipated exactly what the S&Ls were going to do," said Richard Veseley of the Delaware Funds. "we created several new ads and started work on two new TV commercials before the S&L ads started."

The Delaware ads primarily stress the liquidity of money funds -- the fact that, unlike 90-day, six-month, or 30-month bank certificates, a mutual fund investor has complete access to his money without penalty or loss of interest earned up to that time.

The mutual fund ads also point out that a money fund investor is not "locked into" a yield for six months, as he would be with a six-month, $10,000 certificate from a bank or savings institution. If money market rates go up from week to week, Mr. Veseley pointed out, the fund investor benefits from this rise. The investor can also get out of the fund quickly if the rates drop too fats for his liking.

(however, if interest rates do come down, the investor may wish his interest rate was "locked up" in a S&L or bank certificate of deposit.)

Finally, while most money market funds require a minimum investment of $500 or $1,000, there are some that have no minimum, putting them in direct competition with everyday passbook savings accounts. "You can start with as little as a dollar," said Thomas Drumm, an executive with one of these funds, the American Liquid Trust, one of the Keystone Funds of Boston.

As To the S&L's claims of better security because they have federal insurance covering deposits, Mr. Drumm pointed out that his fund, like most others, makes a majority of its investments in bank certificates. Also, no more than 5 percent of the fund's total assets is invested in any one place, including banks , he said. This diversification minimizes the effect of one investment going sour.

Even S&L representatives admit they are going to have a fight on their hands as they continue to fight the ad wars for depositors. "We're doing everything we can to present our case," the Provident's Mrs. Sachetti said. "Still, people are going to go where the money is."

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