Banks are not known for their generosity to savers: On average, they pay a miserly 2.4 percent on money-market deposit accounts and even less on passbook savings.
But some banks are reaching for a share of the $1.3 trillion parked in money-market mutual funds -- by paying rates that rival the money funds' average 30-day yield of 4.67 percent.The banks with the highest rates tend to be so-called branchless banks, which do business with most customers on the Internet or by mail and telephone:
Key Bank USA (800-872-5553) pays a 5.34 percent yield on money-market account balances over $5,000.
Advanta National Bank, 800-441-7306 (www.advantanb.com) pays 5.13 percent on money-market deposits, with a minimum balance of $10,000.
Bluebonnet Savings Bank (800-892-6151) pays 5.01 percent on balances from $5,000 to $25,000 and 5.12 percent on balances over $25,000.
TeleBank 888-989-4422, (www.telebankonline.com) pays tiered rates, starting at 4.8 percent on a $2,500 minimum balance.
The only bank in the bunch that is truly branchless, Net.Bank (www.netbank.com), pays a 5.25 percent yield and requires only a $100 minimum balance. Net.Bank (formerly Atlanta Internet Bank) does business only on the Internet and says it passes along the cost savings of having no bricks-and-mortar branches. (The bank, which operates from Atlanta, is registered with the Office of Thrift Supervision and is FDIC-insured -- as are all the banks listed above.)
With your money-market deposit, Net.Bank gives you free checks and an ATM card. The bank charges no ATM fees, but because it has no ATMs of its own, you're subject to the fees that other banks charge you to use their machines. For a list of surcharge-free ATMs, check the Web sites of the Independent Bankers Association of America (www.ibaa.org) and the Credit Union National Association(www.cuna.org).
Also remember that federal regulations permit money-market depositors to make only six withdrawals per month, of which three may be checks. An electronic funds transfer counts as a withdrawal, but you can make unlimited ATM withdrawals or transfers. If you need more flexible access to your money, stick with a money-market mutual fund with liberal check-writing privileges.