Mutual Funds more Safer

Money market funds, which are a type of mutual fund (other common funds focus on bonds or stocks), are a great place to keep your extra savings. Money market funds are a higher yielding alternative to bank savings and bank money market deposit accounts. Money market funds are unique among mutual funds because they do not fluctuate in value and maintain a fixed $1 per share price. As with a bank savings account, your principal investment in a money market fund does not change in value while you're earning dividends (same as the interest on a bank account). However, money market mutual funds offer several significant benefits over bank savings accounts. The biggest advantage is higher yields.

Money market mutual funds are able to pay higher yields because they don't have the high overhead that banks do. The most efficient mutual fund companies, such as Vanguard, T. Rowe Price, and USAA, don't have scads of branch offices on every street corner. Another reason that banks pay lower yields is that they know that many depositors, perhaps including you, believe that the FDIC insurance that comes with a bank savings account makes it safer than a money market mutual fund.

Another advantage of money funds over bank accounts is that money funds come in a variety of tax-free versions. So if you're in a high tax bracket, tax-free money funds offer something bank accounts don't. Most mutual fund companies require that the checks that you write be for larger amounts - typically at least $250. They don't want you using these accounts to pay all your small household bills because checks cost money to process.