Higher yield alternatives to typical bank MMAs
By Laura Bruce • Bankrate.com

When you're looking for the highest interest rate for your liquid savings or your emergency fund, it's worth investigating money market accounts offered by some of the nation's largest corporations.

General Electric, Ford, Caterpillar and GMAC Bank, a General Motors company, offer rates competitive with high-interest money markets offered by Internet and traditional banks. Current interest rates for the group range from 1.51 percent to 2.43 percent. But there is an important potential drawback to consider.

With the exception of GMAC Bank, you won't have FDIC insurance guaranteeing your deposits. Instead of your money being reinvested in an array of low-risk, short-term investments as they would in most bank money market accounts, you become an unsecured creditor in the company's riskier, higher-yielding debt. If the corporation declares bankruptcy, you may not get your money back. More than likely that won't happen with this group, but at least one credit rating service, Standard and Poor's, gives Ford a credit rating just above junk status.

"Credit quality means everything if you're on a nonguaranteed loan basis," says Jason Flurry, a certified financial planner and president of Legacy Partners Financial Group, Woodstock, Ga. "'The chances are you're never going to need the FDIC, but it's an insurance policy."

Ford declined an opportunity to comment for this article, but General Electric spokesman Peter Stack was quick to note that GE has a triple-A rating.

"We're one of only seven nonfinancial companies to have a triple-A rating. The credit worthiness is a great underlying aspect to look at and then compare rates," Stack says.

GE's Interest Plus money market account also pays a $25 sign-up bonus.

GMAC Bank's Insured Savings/Money Market Account separates itself from the pack because it's a bank and your funds are insured by the FDIC.

"We are a federally chartered thrift, a full-service bank offering money market accounts, checking and CDs," says Michael DiComo, vice president and chief operations officer. "People find us by going to Bankrate.com or some other Web site that may show rates, and they tab down to see who has the best rates."

If the lack of FDIC insurance doesn't deter you from considering the others' offerings, some of the major aspects you'll want to take a hard look at are minimum initial investments, minimum balance requirements and yields.

• Minimum initial investment -- There's quite a spread in this field, ranging from $250 to $1,000. As with most money market accounts, you won't get the best yields if you plunk only the minimum in your account.
  
  
• Minimum balance requirement -- GMAC is the only account which doesn't require a minimum balance to keep your account open, but it will assess a monthly fee if your account drops below $500. Cat Money Market, GE Interest Plus and Ford Money Market reserve the right to close your account if it drops below their respective minimums, but they may let you keep the account open and deduct a fee instead.
  
  
• Yield -- As with most money market account providers, the corporations ballyhoo their best rates in their advertisements but, of course, there's an asterisk. To get the top rate you'll have to pony up $5,000 in the GMAC account and a whopping $50,000 in the others. Nevertheless, bottom-tier rates for investors who fund their accounts with just the minimum aren't too shabby. The lowest yield is at Caterpillar, 1.51 percent.

Money market accounts come with check-writing and money-transfer privileges that often have minimum requirements as to the dollar amount of checks and electronic transfers and impose limits on the number of transactions. Be sure you have read the prospectus and the fee schedule so you won't be surprised by hefty fees being deducted from your account.