The Best Money Market Funds

Money market funds have been around for more than 35 years, revolutionizing the way investors hold cash. Paying far higher interest than most bank savings accounts, they helped investors keep pace with high inflation in the 1970s. More recently, however, banks have fought back with high-yield savings accounts, which pay competitive rates that are sometimes higher than the typical money market fund. These accounts have landed a knockout punch on money market funds, but as we'll see, the money markets aren't down for the count yet.

In particular, money market funds still have a leg up on bank products like savings accounts and CDs. With the combination of more investment choices and flexibility in transferring money among your investments, money market funds can still play a vital role in your overall portfolio.

More choices
Money market funds come in several different types and can be broadly defined into two categories: taxable and tax-exempt. While savings accounts and CDs are always subject to federal income tax, tax-exempt money market funds hold short-term municipal debt that is generally tax-free. Although the stated yields on these tax-exempt funds are lower than their taxable counterparts, their after-tax yield is often higher, especially if you're in the highest tax brackets. Depending on what state you live in, you may be able to find a money market fund that is tax-free for state income tax as well.

Among taxable money market funds, there are several subcategories. Some funds, for example, hold only short-term Treasury bills. These funds are the safest, and their income is usually tax-free for state -- but not federal -- income tax purposes. Other funds hold debt of government-sponsored agencies, such as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), which aren't necessarily as safe as Treasuries. These government money market funds pay higher rates than Treasury funds, but they often don't qualify for the same state income tax breaks. Still other funds hold short-term corporate debt. These funds usually have the highest rates, but they also bear a higher default risk.

More flexibility
In addition to the greater number of choices for investors, money market funds offer investors greater ease in moving their money than savings accounts. Most money market funds offer check-writing services that allow investors instant access to their money merely by writing a check. In addition, you can transfer money between your money market fund and your bank account, as well as exchange money market shares for stock and bond mutual funds offered by the same company.

In contrast, money in a savings account can require several steps to get it where you want it. While high-yield savings accounts offer direct links to other bank accounts, you'll often have to arrange for a transfer and then wait for it to take place before writing a check or making a further electronic transfer to its final destination. And while CDs sometimes offer better rates, they aren't readily accessible at any time without penalty.

Best rates
You'll typically find offerings from popular fund providers Fidelity and Vanguard among the top-yielding mutual funds in each category. For instance, Vanguard's Prime Money Market tops this week's Bankrate list with a yield of 5.22%. Fidelity's Cash Reserves and Government Reserves check in at 5.09%. Among tax-exempt money market funds, Alpine Municipal leads the field with a 3.91% yield, followed by Vanguard's Tax-Exempt fund at 3.87%.

Having short-term savings is vitally important for a successful financial plan. You can learn more about money market funds and other savings options in our Savings Center. On the other hand, if you're looking for ways to find cash to put in your savings, consider taking a free trial of our personal finance service, Motley Fool Green Light. Each month, you'll get new tips that will let you pay less or save more. Before you know it, you'll have plenty of money in whatever savings vehicle you choose.

Fool contributor Dan Caplinger has both money market funds and high-yield savings accounts. He doesn't own shares of the companies discussed in this article. Fannie Mae is an Inside Value pick. The Fool's disclosure policy gives you the best information around.

$200 for Opening Citi Checking Account

I got this invite in my mail the other day and I thought I’d share it with my readers. If the code doesn’t work then I apologize but it’s worth a shot! Here are the details –

Open up a regular Citi Bank checking account with $1,000 by 4/30/08. This is coming up quick, so you better act fast!

Make a direct deposit or at least two electronic bill payments for three consecutive months.

After the first three months, you’ll receive $100. Do the same things mentioned again for another three months and you’ll receive your second $100 bonus for a total of $200.

This offer is only available for first-time Citi Bank deposit account customers.

Right now, I don’t have a link but if you’re interested, call 1-800-374-9500 and mention offer code CYAN.

Have CD (Certificate of Deposit) Rates Bottomed?

Bernanke and the rest of the Federal Reserve are expected to lower interest rates by 25 basis points (0.25%) this Wednesday to 2.00%.

Most experts speculate that after this Wednesday’s cut, Bernanke will keep rates unchanged for the next few months.

This is a tough situation for those looking to open a certificate of deposit account. Rates are so low right now that it is unfavorable to lock these rates in for the long term. Instead, a better choice may be to stash money away in liquid money market & savings accounts, which currently average better returns (APY) than CDs (according to Bankrate national data).

Regardless of whether you open a CD or a money market, the current unfavorable economy makes it very difficult to beat inflation. Low interest rates, record oil prices (almost $120 / barrel), and food shortages are going to make it more expensive for you to maintain your standard of living.

Are you interested in how the Federal Reserve works? Watch the video below to learn!

5 Tips for Buying a Home in a Down Market

The subprime mortgage bust has scared a lot of people away from the housing market. The nightly news is filled with images and stories of everyday Americans who are losing their homes because they made greedy and uninformed decisions, they were taken advantage of by predatory brokers, or a combination of these situations. However, the news isn’t all bad. This decline in the market has dropped prices and made housing affordable to many fiscally responsible renters who never considered home ownership to be an option.

If you find yourself house-hunting, make sure that you follow these five simple steps to take advantage of this downturn in the market; if you don’t, you could be the next sad story on your local news.

1. Accounting for Extraneous Expenses
As with almost any major purchase, there can be a number of fees associated with buying florida property, cotage or a home. Costs associated with property taxes, homeowner’s insurance, standard maintenance, and utilities should not be overlooked. In addition, if you buy a home that is part of a complex or attached to a homeowner’s association, you will have to pay annual fees as well. Make sure that you take these additional expenses into account when you are determining how much home you can afford.
2. Acknowledging Special Assessments
Many homes require a number of regularly scheduled special assessments to be performed in order to satisfy local regulations and ordinances. These are fees that are required in addition to standard property taxes. In order to make sure that these costs don’t take you by surprise, obtain copies of prior bills for these services and inquire about any pending and future assessments that need to be done on the property.
3. Finding a Manageable Mortgage
A good question to ask yourself before contacting your local banker to discuss a loan is, ‘how much is too much?’ While you might be tempted to try and get as much money from home as possible if you can find a good rate, you do not want to make the mistake of taking on a loan so big that your finances will be stretched to the point that you cannot make your payments. Traditional income multipliers are a good place to start. If you have a single income, 3.5 times your annual salary is the maximum that you should consider requesting and if you have dual incomes, the maximum should be about 2.75 times your joint salary. If these amounts will stretch your budget too far, then it is a good idea to consider borrowing less.
4. Determining How Much Home to Buy
Now that you have a handle on all of the costs involved and have determined how much money you can borrow, it is time to figure out just what you can afford to spend on a new home. Whatever you do, don’t bite off more than you can chew; doing so could quickly lead down the road to foreclosure. Take into account your credit history, the closing costs on the loan, the amount of the down payment, and any preexisting debts. Weigh these against your income and savings before making a move.
5. Welcoming Your New Home into Your Basic Budget
Once you have everything in order, set a budget and stick to it. While your new home purchase will undoubtedly become both your biggest asset and your biggest expense, you still have to eat. It is also important to make sure that you start building a rainy day fund in case of emergencies; one of the things that accompany a new home is the potential for substantial unforeseen expenses. Set a reasonable budget that includes an allowance for unexpected costs and you can live happily ever after in your new home.

7 Secrets to Personal Finance Success

Personal finance management can sometimes seem like a daunting task. With the amount of financial responsibilities people have today, keeping track of anything can prove to be quite challenging. However, you don’t have to be a rocket scientist to be successful in personal finance management.

I’ve come up with a nice list of some tips anyone can use when managing your money. With some economists calling an official “recession” in the USA, it is a good idea to keep your finances in check!

1. Stay Organized
Organization can be helpful in all areas of life, especially personal finance. The most organized people will usually have the most success. Being organized in personal finances isn’t tremendously difficult either. Simply keeping track of bills, when things are due, and how much money you have can do wonders. There are also a variety of things one can do to help stay organized. Using calendars to write down when payments are due, or using any other sort of organizer can be quite helpful. Keep track of your bills, and file them with as much organization as possible.

2. Be Proactive
Sometimes the best way to be successful is to be proactive. Instead of waiting for the bills to pile up, have your checks already written. Anticipate how much certain costs may be and set money aside specifically for that. Just like with some sports, the best defense is a good offense. If you’re being proactive with your personal finance, you’ll be less likely to get caught with not enough money to pay a bill or a pesky late fee. If you’re carrying a credit card balance, do your best to pay more than you need to (it will help you to avoid some higher interest fees later). The same can be said for any loans you may be paying off. Paying more than what is required can really help and get rid of loans faster.

3. Don’t Fall Behind
If you’re not being proactive, then you best not be falling behind. Make sure to stay with your bills and keep track of your finances well. Falling behind is terrible because it usually leads to falling further behind. Once the bills start mounting, they don’t stop, which spells trouble for anyone. Do whatever you can to make sure you at least stay with the bills, on-pace, and on time. If you are organized and use some of the other tips here, you shouldn’t fall behind.

4. Seek Advice if Needed
Sometimes we all need a little friendly advice or help. If you are stuck on how to deal with a certain financial situation, never be afraid to ask a friend or family member for advice. If things are bad enough, you should also consider professional financial advice. However, I feel it’s always a good idea to only seek professional help if nothing else can be done and it is a last resort. If you are new to some things (such as buying a house, financing an education, etc) then you would be crazy to not seek some advice. You can learn a lot from people who have been through things before. Find out about other’s mistakes so you don’t repeat them. Remember, it’s not smart to forego seeking advice because of pride or laziness.

5. Be Prepared for Anything
Personal finance management can be organized and planned for, but sometimes, things just happen. You may get in a car accident, a breadwinner could be fired, a check could bounce, etc. Be prepared for anything. Some of the most successful people in personal finance management often have emergency funds. Create a special account for any emergency bills that might come up (you could also throw money under a mattress, or in a cookie jar, but it won’t earn interest that way). If you periodically put a part of your paycheck in that fund, you’ll find that it will grow rather quickly. It never, ever hurts to be over-cautious. You’ll be extremely thankful when you have a nice safety fund available when you really need it.

6. If Possible, Pay Bills Online
This is just my personal preference, and of course you can stick with checks if you prefer. However, I find that paying bills online is faster, easier, and helps me stay more organized. Rather than trying to mail checks and anticipate when they will arrive, you can often pay bills the very same day. I find that paying bills online helps me avoid pesky late fees that can really add up. Of course, you still have to be slightly proactive, even with online statements and such, because there’s nothing worse than the Internet crashing when you have a bill due that same day.

7. Don’t Panic
This last piece of advice can extend into a lot of other areas in anyone’s life. Even if things seem like they can’t get any worse, it never helps to panic. If you are behind, or some unforeseen financial issues arise that you weren’t prepared for, remember that nothing can be accomplished if you panic. Always be calm and think through the options, and discuss things with anyone else involved. Remember to seek advice if you feel it’s needed, and follow that advice! Nothing gets accomplished when you don’t have a clear head, so don’t panic if your financial management isn’t working out as planned. No matter how broken things may seem, they can almost always be fixed.

So there are seven tips that should at least help with personal financial management. Nothing is foolproof, and most people have had their fair share of financial pitfalls. However, if you stay organized, don’t panic, stay ahead, and are prepared, you should have success in managing your personal finances.

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