Just when Americans were getting used to higher interest rates as an incentive for saving, a favorite vehicle for those rates seems to have gotten a flat tire. Money market funds, once paid interest rates as high as 17 percent, are now averaging less than 10 percent.
Last week, we discussed some money fund alternatives within the mutual fund industry. With a telephone call, you can switch to stock funds, corporate and municipal bond funds, or a tax-free fund.
But if you want to go outside the mutual fund business, there are several ways to get high yields while interest rates fall.
One thing to remember, though, is that getting larger returns usually means giving up the use of your money for at least six months. With some of these alternatives, you won't be able to make a phone call and have the money in your banks the next day; nor will you be able to write checks on the account.
The rates being paid on bank certificates of deposit, for example, are comparable to those offered by the money funds. But while fund rates will perhaps continue to fall over the next six months, the CD rate you buy today is guaranteed for the entire six-month period.
Perhaps one of the most interesting alternatives to be offered by banks and savings institutions is not available yet, but it will be soon. The banking assistance law passed by Congress a few weeks ago gave the Depository Institutions Deregulation Committee 60 days to come up with a deposit instrument that would compete with money market funds. It is supposed to be available by Dec. 14, although it will probably be out before that, a committee spokesman said.
Meanwhile, the committee is asking for comments on how the new instrument should be structured. What is known is the minimum deposit won't exceed $5,000, the account will be federally insured up to $100,000, and the interest rate will be close to that of money market funds.
Right now, you can get six-month certificates of deposit from your bank. Rates are pegged to the weekly Treasury bill rate, which is close to money fund rates, but it is locked in for six months, a plus if interest rates keep dropping.
Perhaps trying to head off the new certificate, several large brokerage firms have started selling insured certificates of deposit. At Dean Witter Reynolds Inc., this account is called the ''Easy Cash CD,'' says Robert Scherzer, an account executive in the brokerage firm's Boston office. The firm negotiates with a large bank to buy millions of dollars' worth of certificates at a slightly higher interest rate than the bank normally offers on its CDs. At Dean Witter, they are sold as four-year certificates in $4,000 amounts. Other brokers have different terms. If you need to you can sell the CD back to the broker early, without penalty. And because the CDs originate with a bank, they carry federal deposit insurance.
Banks and S&Ls are also offering 2 1/2 year ''wild card'' certificates, named that because banks can offer whatever interest they like on them. Last month, rates were a couple of points above the money funds. The minimum investment on these is usually $500. There is one hitch: heavy penalties if you redeem them early. So buy several and keep the denominations small.
For the greatest possible security, you could buy directly from the federal government. Maturities on US Treasury bills and notes range from three months to 10 years. Short-term notes with maturities of less than four years come in $5, 000 denominations; longer-term notes are available for $1,000.
If you think interest rates are down to stay for a while, perhaps a 10- to 30 -year, $1,000 Treasury bond would suit you. These have been paying about 11 percent lately.
Staying with bonds, many investors are discovering high-grade corporate bonds , yielding over 12 percent interest, can be as comfortable an investment as money funds. By high-grade, most investment advisers mean a rating of AA or better, certainly no lower than A (although an investor with the financial strength to tolerate some risk and to diversify can often find good values and higher returns in lower-rated - or even unrated - corporate bonds). There are also unit trusts that allow you to get a piece of a corporate bond portfolio. These are available from brokers for $1,000.
Of course, there are more types of municipal bonds than all the others put together. In recent months, the municipal bond market has been very active as governments and agencies that waited for interst rates to drop have reentered the bond business. Many of these issuers are also putting out new bonds to refinance older, more costly bonds. ''Munis'' earn interest free of federal taxes, and free of state taxes in most states that issue them.
Then, of course, there is the stock market. If, as many anaylsts assert, we are at the beginning of a bull market lasting as long as two years, it still may not be too late to get in on the second floor. If you do not have a broker you trust, ask your friends and co-workers to recommend some names. Interview them to see if their views on investment match your goals and concerns. Then, do some careful investing, keep yourself diversified, and watch the stock listings in the papers.
While many people think first of corporations when they hear about stocks, many investment advisers recommend utilities and banks which pay higher dividends. And in many states, utilities are getting a bigger share of their rate increase requests, boosting earnings more.
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