I might have some extra money sometime in January and I would want to invest it until around September. I was wondering what would be the safest way to invest it -- a six-month Treasury bill?
-- James Nelson
Money market funds may be the
Lorna Doone of investment products but they are still a good place to sock your short-term cash. And finding a solid one is pretty easy.
Retail money funds, which invest in short-term debt, such as Treasury bills and commercial paper, come in a few different breeds: government-only funds, non-government funds and tax-free funds. You will get a slightly higher yield in the non-government variety, which will invest in high-quality commercial paper and other instruments. For example, the seven-day average yield (no compounding) for non-government funds was 4.18% ending May 25, compared with 4.09% for taxable government-only funds, according to Connie Bugbee, editor of
IBC's Money Fund Report
With only a few months to invest this money, you may want to go for the fund that is going to make you the most money. With a yield in the 4% range, that's not going to be much, but you can start by looking at the non-government funds with the highest yields.
IBC Financial Data's
contains a complete
of the top non-government retail funds, ranked by highest seven-day compound yield. (The site also includes a
to selecting a money fund.)
Some firms achieve high money-fund yields by waiving all or some of the fund fees. (All yields are calculated after fees.) Actually, quite a large number of money funds have all or a portion of their fees waived. At the end of the first quarter, 57.9% of retail government funds and 47.3% of non-government funds were waiving all or some of their fees, says Bugbee. Fee waivers are used to boost yields and attract assets into the funds or the fund families. "Why does
have a sale every week? They get you in the door," says Bugbee.
There is nothing wrong with going for a fund that has a partial or total fee waiver -- particularly if you are investing for a short period of time. But make sure to ask the fund company how long it is going to waive that fee. Once the fee waiver ends, the yield will go down.
You also should consider a few other elements before putting your money into the highest yielding fund. First, make sure that you can meet a fund's minimum investment requirement. For some investors, there is a dramatic difference between $1,000 and $10,000.
The services offered by a money fund may also vary. You may want or need check-writing privileges. A money fund might limit the number of checks your can write and require minimum amounts for each check you write. On the flip side, some funds offer unlimited check writing.
You may even find a money fund or two with a truly exceptional perk. Since last year, for example,
has been offering frequent-flier miles in return for investing in two money market funds.
If you are planning to invest your money with a particular fund family or brokerage firm when your nine months are up, you may want to pick a money fund within that firm. That choice will probably make life a little easier.
Unlike certificates of deposit that you buy from a bank, money market funds don't come with
Federal Deposit Insurance Corporation
insurance. But with a money fund, you won't have to worry about premature withdrawal penalties and you can always get to your money when you need it. And these instruments are tightly regulated and shouldn't be a cause for worry.
You can buy T-bills for a minimum of $1,000 directly from the government through the
program. But for such a short period of time, it might be easier to invest in money market funds.