Money-Market Accounts Losing Ground, Poll Says : Statewide Survey by Consumer Group Finds That Most CDs and Regular Savings Accounts Earn Higher Interest

Money-market deposit accounts, heralded when introduced five years ago as a higher-yielding savings alternative, continue to lose advantage to other savings accounts, a new statewide survey shows.

Depositors at most California banks and savings and loan firms will earn higher interest--and pay lower fees--by switching from money-market accounts to certificates of deposit or regular savings accounts, Consumer Action, a San Francisco-based consumer group, said in a survey to be released today. The survey lists savings account terms and rates at 94 California banks, S&Ls; and credit unions.

“A lot of money in these (money-market) accounts should not be in them,” Consumer Action Executive Director Ken McEldowney said Wednesday in an interview. “There is a need for people to look more carefully at the interest rates they are receiving on the accounts.”

The reduced attractiveness of the accounts is yet another sign of how banking deregulation and lower interest rates have produced mixed results for depositors.

Money-market deposit accounts were created in December, 1982, to help savings institutions compete with money-market mutual funds, which had been taking deposits away. The accounts allowed savings institutions to pay money-market interest rates without requiring depositors to tie their savings down for a specific period of time, as in certificates of deposit. The accounts in some cases also allowed limited check-writing privileges.

Money-market rates are generally pegged to rates on short-term credit instruments such as Treasury bills, commercial paper and bankers’ acceptances.

Rates Lowered Significantly

When money-market rates were above or near double-digit levels, as in 1982, the accounts clearly paid more than regular savings accounts (also called passbook accounts at some institutions), which were limited by law to pay no more than 5.5%.

But as money-market rates have declined dramatically in the past two years, savings institutions have lowered rates on money-market deposit accounts significantly more than on regular savings accounts or CDs.

The Consumer Action survey showed that only a third of the California banks and S&Ls; surveyed paid higher rates on money-market accounts than on savings accounts for deposits of $2,500 or more as of the July 1 survey date.

Large institutions that paid less on their money-market accounts for balances of $2,500 included First Interstate Bank of California, California Federal Savings, Citicorp Savings, Glendale Federal, Security Pacific National Bank and Wells Fargo Bank. Security Pacific, for example, paid 4.75% on money-market accounts with balances above $2,500, versus 5% in a regular savings account.

For depositors with less than $2,500, the money-market account was even less attractive. Institutions charge fees, usually between $5 and $10 a month, if balances in the accounts fall below a certain level, usually $1,000 or $2,500. By contrast, fees on regular savings accounts usually are lower and are charged only if balances fall below $100 or $200.

In almost all cases, six-month or one-year certificates of deposit paid more than money-market accounts and regular savings accounts and can be opened for as little as $500 at some institutions, the survey showed. CD rates also varied widely. For example, yields on six-month CDs of $2,500, as of the July 1 survey date, ranged from 7.53% at Sincere Federal Savings Bank in San Francisco to 5% at Bank of the Orient.

AN INTEREST RATE SAMPLER

A comparison of interest rates available on a deposit of $2,500. Data is as of July 1, 1987.

Rate on money market Rate on regular Institution deposit account savings account Bank of America 5.10% 4.75% First Interstate Bank 4.70% 5.00% Security Pacific National Bank 4.75% 5.00% Union Bank 4.88% 5.00% Wells Fargo Bank 4.75% 5.00% American Savings 5.60% 5.50% California Federal Savings 5.15% 5.25% Glendale Federal Savings 5.25% 5.50% Great Western Savings Bank 5.10% 5.00% Home Savings of America 5.30% 5.00%

Source: Consumer Action