Before the government tightened credit, "Moneywise" suggested money- market mutual funds as a good place for small savers to keep up with inflation. Is that still true? Are there any other alternatives developing with as good a return?" P.H.
The time lapse in getting to your question, due to the present backlog, has made one part moot -- credit restrictions including the reserve requirement for money- market mutual funds are gone. Short-term money rates have declined, including the yields from money-market mutual funds.
These are still a good place to park transient funds, but yields are not up to inflation. Higher yields are available in income utility stocks and deep-discount bonds, or in one of the income-oriented mutual funds.
These higher returns differ from savings accounts or money-market funds in one substantial way, however. Although the current yield may be higher, the net asset value of the stocks, bonds, or mutual fund shares will likely vary. If the asset value increases, your total yield also goes up, but the reverse is true if the asset base declines. At this writing, money-market mutual funds still appear to offer a good combination of fair return, stable asset base, and liquidity with acceptable risk.