Banks, thrifts and money market funds have one thing in common these days: They're working frenetically to get your money.
If they've already got it, they want to keep it; if someone else has it, they want you to transfer it.Several factors are at work in the advertising and marketing war that has sprung up in recent weeks. First, the number of competitors for investment funds has grown. At the same time, much money that fled the stock market after the crash last year went into 12-month certificates of deposit, which now are maturing. That windfall came on top of precrash funds flowing into CDs and money market instruments because interest rates were rising.
The surge kept going in the months after the crash, and none of its beneficiaries wants to see it fade away.
Bankers have learned to love deposits like these because - absent financial earthquakes like the crash - they tend to be "quiet money" that isn't constantly on the move in search of the highest yield.
Mutual fund operators say that money-market funds are one of their few sales-growth areas now that there is more fear of equity mutual funds. Stock brokerages, finding the market a tough sell, are emphasizing their cash-management services so that they can at least keep a relationship with their customers.
The net result of these developments is an opportunity for savers to match their needs to any one of a multitude of savings vehicles. Available now are CDs with no early withdrawal penalty after the first seven days, CDs with variable rates, name-your-term CDs in which the customer can choose the maturity date and "time open" accounts to which the customer can make additional deposits during the term of the CD.
There also are CDs with rates tied to the performance of the stock market, and even one tied to the performance of the Washington Redskins.
"The competition is fierce," said Doug Adamson, executive vice president of the Bank Marketing Association, an affiliate of the American Bankers Association.
But all of this doesn't make things easy for the consumer. Choosing the best deal requires care, both in examining one's own needs and goals and in checking out what's offered.
The first step is to take a hard look at your own situation.
Everyone should have savings. Financial planners differ on appropriate minimum savings levels, but at least you should have enough on hand to pay large unexpected expenses - a big medical bill, for example, or a major car repair - or to do without a paycheck for a couple of months.
Savings like this should be distinguished from investments. With investments, you should be willing to take some risk, perhaps a lot of risk. But savings should be kept as risk-free as reasonably possible. You sacrifice any chance for a red-hot rate of return, but that's not the first priority with savings.
There are other reasons for building up a portfolio of very secure holdings.
If you are nearing retirement, for example, you should be moving out of volatile investments, such as growth stocks, and into stable holdings. This is money you are going to be needing in a few years, and you don't want to be forced to sell stocks in the middle of a market slump. The same is true for other times when you will need large sums of money, such as a child's tuition expenses.
If you know when you will be needing to draw on your savings, you can tailor a CD to mature at that point.
If you think you might need your money but don't know when, a no-penalty CD has appeal. Perpetual Savings Bank in Washington, for example, offers a one-year CD that allows one penalty-free withdrawal, and it allows you to add to the CD in $500 increments during the term. However, this is a $5,000 minimum account, and the interest rate is variable.
Other banks and savings institutions offer variable-maturity or no-penalty CDs, so shop carefully.
If you feel it's unlikely you will need the money for years, then look for the best interest rate. Be careful to check the annual yield, which the bank must tell you, when comparing deals. Some banks offer introductory, or "teaser," rates that start out high and then drop, so that the CD may have a lower overall yield than a less spectacular one.
"Make sure the instruments you look at meet your personal objectives," Adamson said. "It's easy to get caught up in one that looks attractive" but may not work well in your situation.
You should also be aware that interest rates have been very volatile in recent years, and traditional fixed-rate CDs are a way of locking in the current rate. If rates go down later, you're ahead. If rates go up, your earnings will be below market.
A variable rate CD can hedge this risk. If it has a floor, it allows a minimal lock-in, while allowing you to ride up if interest rates rise. Check the penalties on these, though, because the bank may agree to bear some of the interest rate risk only in exchange for locking up your money for a specified term.
Also keep in mind that the highest rates often are offered by troubled institutions desperate for deposits. While deposits are insured by the government up to $100,000, there is some risk that your money might be tied up for a while if the institution holding it fails.
Finally, be sure your deposit is in fact insured. Most are, but confusion can arise with "money market" accounts. These usually offer limited check-writing privileges and pay interest at current short-term market rates, useful for depositors looking for earnings on money they may need at any moment.
Many of these are true bank accounts, insured by the government. They are simply deposits that pay an interest rate that is indexed to some standard, such as the bank's cost of funds.
But others are true mutual funds, just like those offered by investment companies, and not government-insured even though they are offered by a bank. The bank's disclosures will make this clear - but be sure to ask before you deposit and read what they give you.