Lifting the Lid

Banks go after money funds

Bankers and savings and loan officers have long cast envious eyes at money-market mutual funds. Reason: the lofty interest that the funds pay, which currently averages about 9%, has attracted some $230 billion in cash. But federal guidelines announced last week will allow banks and thrifts to challenge the funds on an equal footing beginning Dec. 14. The new rules permit the institutions to offer money-market accounts of their own without any interest ceiling.

The new investments will have a large competitive plus but also several minuses. On the positive side, the accounts will be federally insured for up to $100,000. Money-market mutual funds, by contrast, carry no federal insurance. But bank and thrift customers will have to keep at least $2,500 in their high-yield deposits to avoid a penalty, while the funds typically require no more than $1,000. Savers also will be allowed to draw just three checks a month on the new accounts. Most money funds offer unlimited checking privileges.

Ironically, the new accounts are arriving at a time when interest rates have been falling. The Federal Reserve Board cut its discount rate to 9% last week, for example, the lowest level since November 1978.

Some industry observers warn that the money-market accounts could do the ailing S and L industry more harm than good. They fear that customers may simply roll much of the $90 billion still in 5 1/2% passbook deposits into the new investments. That would sharply drive up the thrifts' costs without bringing them more money.

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