How to find your way through the financial supermarket maze

People pushing their carts through the financial supermarkets face a stupefying array of choices. First, they must decide which aisle to use, if each aisle represents a different industry. One aisle might be banks, another would be savings-and-loans , then mutual funds, followed by brokers (choose here between discount and full-service), insurance companies, credit card companies, department stores, and credit unions.

Then, they have to pick the best product in each aisle. Not only does each industry offer a variety of accounts with different rates; there is a wide range of minimum-deposit requirements, terms, compounding methods, withdrawal penalties, and tax treatments. It's enough to confuse some people so they won't act, instead keeping their money in a regular passbook account.

Not a good idea.

Fortunately, there are some standards you can apply to almost all financial service firms and their products to cut through the confusion and help decide which is best for you:

* Minimum investment. How much money do you have? How much can you set aside now? What is the smallest deposit the bank or other firm requires? How much do you want available on demand, or how much can you lock in for a longer time at a higher rate?

* Liquidity. This is related to minimum investment, but here you want to know how quickly and easily you can get to your money, if this is money you expect to need on short notice.

* Maturity. How long can you leave your money on deposit? The longer you can, the more it will usually earn. Or perhaps there is a specific date you want the money, like retirement, school tuition time, or the beginning of a vacation. If you know what you want the money for and when, you can find a product to fit that need.

* Income. If there are dividends, do you want them mailed to you on a monthly , quarterly, or semiannual basis? Or would it be better to reinvest the dividends to earn even more interest?

* Yield or interest rate. What is the return after inflation and taxes? If inflation is 5 percent and your investment is earning 9 percent, that leaves a real return of 4 percent. But then, taxes might erode much of that figure. Check your tax bracket to compare the rates and find something with a good yield after inflation and taxes, although you may have to give up some liquidity to do it.

Also, find out how the yield is compounded. Instead of comparing annual interest rates, look at effective annual yields. The more often the institution compounds interest, the higher this yield will be. Thus, a lower annual rate could result in a higher effective annual yield because one institution compounds continuously or daily, while another only compounds monthly or semiannually, if at all.

* Tax treatment. Find out how the earnings are taxed. Will they be treated simply as interest or dividends, or as long-term capital gains? Are they subject to federal and state tax, or are they tax-free in either or both cases?

* Safety. Bank and S&L deposits at federally chartered institutions are insured in full up to $100,000. Most states have some form of deposit insurance on state-chartered banks. Also, many brokers sell certificates of deposit and other instruments that are insured by the federal government, often because the broker originally purchased the CD from a bank. There are also private insurance groups for brokers, credit unions, and some other firms.

If there is no insurance on your deposit, check the record of the institution or industry. Money market funds, for example, have an excellent record of security. Of course, if you are willing to accept higher risks, you may choose an investment with a potential for a very high return.

By applying each of these criteria to a financial service product under consideration, you will be able to find one that meets your goals, financial situation, and comfort level.

In last week's ''Moneywise,'' it was stated that a zero-coupon bond purchased now for $5,820 and yielding 11 percent would return $40,000 in 13 years. Actually, it would take 18 years to achieve that result, although you could invest $9,440 at that rate and have $40,000 in 13 years. Thanks to a reader in New Jersey for pointing this out.

AARP money market fund

I would be interested to hear your comments about the AARP (American Association of Retired Persons) US Government Money Market Trust. I am a member of AARP and have invested in this fund. When I began, I was particularly interested in the $500 minimum investment.

- G.H. Yours is by far the biggest of this particular group of money market mutual funds, with some $3 billion in assets, according to Donoghue's Money Fund Report. The money is managed by Federated Securities of Pittsburgh, one of the largest money fund managers, which has several other funds under its wing. As for security, the AARP trust is probably about as safe as any, though the investments in this group of funds - listed as US government and agencies - do not carry as many guarantees as funds that invest directly in US Treasury securities.

There are, however, equally safe funds with smaller minimum and subsequent deposit requirements. A broker may be able to tell you which ones they are, or you can get a copy of Donoghue's Mutual Fund Directory ($19.95, Box 540, Holliston, Mass. 01746), which lists all mutual funds, including money funds, their minimum and subsequent investment requirements, addresses, and toll-free telephone numbers. Although you can order the directory now, it won't be sent until this year's edition is ready, probably in early May.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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