(FORTUNE Magazine) – What's the biggest charity in the U.S. after the Salvation Army (No. 1) and the YMCA (No. 2)? Would you believe it's Fidelity's Charitable Gift Fund, one of a growing number of so-called donor-advised funds that let you turn appreciated assets into a nice tax break for yourself, while helping the needy in the process?

Last year the Gift Fund took in a staggering $870 million, a big chunk of which came from former Goldman Sachs partners, who contributed $82 million in stock they received from the firm's initial public offering. The Vanguard Charitable Endowment Program also cleaned up; it got $3.5 million worth of Goldman stock.

Donor-advised funds work this way: You make an irrevocable gift of at least $10,000 in securities or cash to the fund, which qualifies as a charity--and you get an immediate tax write-off for the donation. If you give appreciated securities, the fund can sell them without having to pay capital gains taxes (this is obviously much smarter than selling the assets yourself, paying tax on them, and donating what's left). The fund then reinvests that cash in mutual funds. Your money, in the meantime, grows tax-free while you take your time deciding which charities to parcel it out to. You can't get the money back, but you can use it to make gifts over your lifetime--and even your children's and grandchildren's lifetimes if you name them as your successors. What's more, your gift reduces the size of your estate, so your kids will pay less inheritance tax when you pass on.

Of course, you can always establish a trust or foundation to distribute your money and get tax benefits. But the setup costs can be steep. By contrast, most donor-advised funds require no up-front fees and charge maintenance fees of less than 3% of assets a year, on top of the usual portfolio-management fees. The Vanguard Charitable Endowment Program (888-383-4483), which requires a minimum investment of $25,000, has the lowest fees of the bunch--just 0.45% of assets a year (or 65 to 75 basis points, if you include the expenses charged by the funds the program invests in)--which means that more of your money is left for good works. There are three different pools of Vanguard funds to choose from. The riskiest, called the growth pool, invests 80% of its assets in Vanguard's Total Stock Market Index fund. Ably managed by veteran Gus Sauter, the fund has turned in a five-year average annual return of 23.6%.

If $25,000 is too rich for your blood, take a look at the Fidelity and Schwab funds, which require only a $10,000 initial contribution. Fidelity (800-952-4438) offers four investment pools, and its administrative fees range from 0.15% to 1% per year. On top of that, you pay annual investment management fees of 45 to 65 basis points. The Schwab Fund for Charitable Giving (800-746-6216) charges 0.57% to 1.1% per year and offers three investment pools.

Before you send a check, however, consider another option. Fidelity, for one, offers pooled-income funds that likewise donate your money to charity when you die. The difference is that while you're still alive, they pay you an income stream of about 5% to 6%, depending on how the investments do. Your tax write-off will be smaller, since only a part of the wealth your money creates will go to charity, and you'll have to pay taxes on the income. But both the write-off and the charitable gift are still likely to be significant.

One word of warning: Some pooled-income funds have come under scrutiny by the IRS and Congress for their unusually aggressive practices. One, for example, gives some of the money back to its charitable donors as pay for "volunteer" work. Stick with the more established fund families, however, and you should be fine. You'll get that warm feeling you get when you trim your tax bill--and an even toastier feeling for helping out someone else.