Could yields for money market fund see 6 percent?

The Fed meets five more times this year. Even if the fed funds rate isn't hiked at every meeting, money market funds, which generally lag CDs because of the liquidity factor and the expense ratio, are already running neck and neck with some of the top-yielding CDs.

Both a one-month CD and a two-month CD at IndyMac Bank earn an annual percentage yield (APY) of 4.75 percent, according to Bankrate.com's survey of high-yield CDs. Four of the more popular retail money market funds are showing seven-day yields in that neighborhood.

Popular retail money market funds

Company 7-day yield (%) Expense ratio (%)

Schwab Value Advantage Money Fund 4.86 0.35

Vanguard Prime Money Market Fund 4.83 0.30

Fidelity Money Market Fund 4.72 0.42

Fidelity Cash Reserves 4.68 0.43

(Note: yields are net of expense ratio)

Many banks have been steadily ratcheting up yields on short-term CDs and high-yield money market or savings accounts. But, as mentioned, since they do business on both the long and short end of the yield curve they might have to become less aggressive on the short end as the yield curve will presumably shift from inverted or flat to a more normal slope. But until then, the battle for cash and customers continues.

It's not just the highly advertised accounts offered by institutions such as ING Direct, HSBC and Emigrant Direct that are trying to woo consumers with attractive yields. Cambridge Savings Bank in Cambridge, Mass., plowed through the 5 percent barrier with a stunning 5.15 percent savings account that's available only to people who live in communities served by the brick-and-mortar bank. Customers must pony up a hefty $25,000 to open the account, but the rate is guaranteed through February 2007.

Attractive liquids

"One of the attractive components of this account is that it's liquid. Customers can add and withdraw deposits at any time. Our emphasis is to attract core customers. That's why we're not looking to broaden beyond our geographic marketplace," says Gary Coltin, executive vice president of consumer banking.

Look for bank savings accounts and money market funds to become more popular if the recent stock market volatility continues. If inertia has kept you from opening an account at an institution that offers a high yield savings or money market account, there is no better time to get going.