Skittish Investors Rushing to Banks, Thrifts for Refuge

Shaken stock market investors, dazed by Monday’s 508-point drop in the Dow Jones industrial average, rushed Tuesday to move their money into safe refuges, including money-market funds, Treasury bills and bank certificates of deposit.

The movement was confirmed by money managers and financial experts around the country, who noted these conservative investments are particularly attractive now because yields have risen in recent weeks along with a general upswing in interest rates.

“A lot of the flight to quality has to do with the level of rates as well as the level of uncertainty,” said William Anderson, financial analyst for the Chicago-based American Assn. of Individual Investors.

Robert K. Heady, publisher of the Bank Rate Monitor and 100 Highest Yields newsletters in North Palm Beach, Fla., said money-market account yields at one Texas savings and loan have already surpassed 9%.

“The stock market crash is going to send investors fleeing back into the safety of banks and thrifts nationwide,” Heady predicted. “. . . The (stock market’s) roller coaster thrill ride is over for consumers.”

Experts say the more conservative investment approach gained in momentum even though the Dow index rebounded Tuesday. The Dow Jones average gained 102 points in a wild day trading.

“It’s a traditional flight to safety in a time of stress and it’s going to continue even though the stock market rose (Tuesday),” said James Benham, head of Benham Capital Management group of funds in Palo Alto. “I don’t think the uncertainties are over. There is a good chance the economy is going to slide into a recession sometime very soon.”

One beneficiary of the flight to safety has been low-risk money-market mutual funds, which invest in government securities, bank certificates of deposit and short-term corporate IOU’s known as commercial paper.

Investors poured about $2 billion into these funds last week when the market free fall began, according to Susan Cook, editor of Donoghue’s Money Fund Report, which follows nearly 300 money-market mutual funds across the country.

These funds now have a record $232 billion in them--an amount that is expected to swell further when revised figures are released today, Cook said. “We are looking for a substantial inflow,” she said.

One conservatively run investment fund--the Benham Capital Preservation Fund that invests in U.S. Treasury securities and has $1.8 billion in assets--expects to receive more than $100 million in new money by next Monday, according to fund manager Paul Single. “This is really a scary time for investors,” he said.

Some financial institutions expect to gain new deposits, but don’t expect the money to flow in for several more days--the amount of time it will take for investors to get their money from the stock selloffs.

Phone calls to branch offices of Great Western Bank in Beverly Hills were several times the normal volume. “There is clear evidence that people are shopping around for safety and security,” a Great Western spokesman said.

Some conservative investors believe that the uncertain market conditions are tailor-made advertisements for their cautious approach to money management.

“The fact is,” Benham said, “it is just this kind of atmosphere that I envisioned when I created the Capital Preservation Fund 15 years ago.”