(MONEY Magazine) – Faced with such tragedies as poverty in America, Hurricanes Bertha (below) and Fran, the TWA and ValuJet crashes, the Olympic bombing and the war in Bosnia, many Americans share the same impulse: They want to open their wallets. Last year, public giving rose 8% after inflation to a total of $116 billion, and charity officials expect another gain this year. That generosity is laudable. But with 626,226 charities vying for contributions and another 30,000 joining their ranks every year, how do you decide which ones deserve your dollars? This story will help.

In these pages, MONEY ranks 25 major U.S. charities on the basis of how efficiently they spend your dollars (see the table below). Our No. 1 charity: the American Red Cross, which dedicated an average of 92% of its income to programs over the past three years--a higher percentage than any other group on the list. Led by its 1.4 million volunteers, the Red Cross assists at natural and man-made disasters, teaches first aid and swimming, collects blood donations and keeps American troops in touch with home. Catholic Charities USA, which helps needy people of all religions, came in second, followed by the Salvation Army. Later in this article we provide three tips to help you check out other charities. And in the box on page 102, we tell you how to use the Internet to get illuminating information about charitable organizations of all stripes.

Of course, charitable giving is driven by a desire to help others, not by cost-benefits analysis. But after hearing about recent scandals involving such charity leaders as William Aramony of the United Way, and the Foundation for New Era Philanthropy's recently indicted John Bennett Jr., many people also want to be sure that their hard-earned money will go primarily toward causes they support--not to pad charity executives' pockets or to raise funds that get wasted on bureaucracy. Says James Bausch, president of the National Charities Information Bureau, a leading watchdog group: "These days, more donors are paying attention to where their money is going and what it's being used for."

Lawmakers in Washington are finally paying attention too. This year, Congress passed legislation that gives the Internal Revenue Service power to fine charity officials for accepting "excessive" pay packages--ones that are significantly fatter than their peers'. The IRS now can also penalize charity officials who benefit from sweetheart business deals, such as buying property from the charity at less than its fair market value. Better still, starting next year, charities will be required to mail you their three most recent tax returns at no charge beyond copying costs and postage, if you ask. The tax forms are an especially valuable way to find out how much a charity pays its top execs. Previously, charities had only to make these tax returns available to public inspection, which could mean you had to travel to the national office to see them.

The charities you're considering supporting may be among the nation's biggest and most well known. That's why, for the seventh year, we're publishing a ranking of the nation's most efficient charities. Our study is based on the annual survey of the nation's 100 largest charities (according to total income) by the trade publication the NonProfit Times ($15 for the NPT 100 issue; 240 Cedar Knolls Rd., Suite 318, Cedar Knolls, N.J. 07929). Our table zeroes in on the 25 that raise the most money directly from the public. We rank them according to the percentage of their income that goes toward good works, because experts consider that figure the best indication of how efficiently a charity uses its resources. (You can find a ranking of all 100 major charities on the MONEY Website at http://moneymag.com.)

Our ranking excludes groups, such as the AmeriCares relief organization (annual income: $146 million; 800-486-4357), that get the vast majority of their income in the form of donated goods, not cash. Financial figures from such groups cannot be fairly compared with charities that have to raise cash. Also, the United Jewish Appeal (annual income: $347 million; 212-818-9100) does not appear because the national organization spends money raised by local chapters, but its books don't reflect the local chapters' fund-raising costs. Therefore, its program efficiency would not truly reflect the total cost of raising money. And the NPT does not include any of the more than 1,400 United Way federations in its list because they fund other organizations and do not provide direct charitable services.

This year, our table also shows you the percentage of each organization's income that comes from public donations. That's important to know because groups that get a large portion of their money from government and institutional sources or earned income, such as the American Red Cross and Catholic Charities USA, generally can spend a smaller portion of their income on fund raising than such groups as the Muscular Dystrophy Association and the American Cancer Society that rely heavily on individual gifts. The next column of the table shows how much each charity spends to raise money. Charity watchdogs say it's reasonable for a group to spend as much as 35 [cents] to raise $1.

Finally, our table notes whether the charities meet the standards of the leading watchdog groups: the American Institute of Philanthropy (AIP), the Philanthropic Advisory Service of the Council of Better Business Bureaus (CBBB) and the National Charities Information Bureau (NCIB). While their standards vary, all three generally confer their blessing only on charities that spend at least half their income on programs and keep a lid on administrative and fund-raising costs.

While most large charities pass muster with the watchdogs, a few run afoul of their standards. For example, the NCIB faults the Salvation Army and Shriners Hospitals for not providing all the information it requested. The AIP gives low grades to two groups on our list: The National Easter Seal Society gets a D because, according to AIP's calculations, the group spends too much on fund raising. And AIP gives Shriners an F because it believes the group retains too much of the money it raises. "If you have more cash on hand than you will use in five years, as Shriners does," says AIP president Daniel Borochoff, "that's a poor basis to ask for additional money." A Shriners spokesman says the group limits its program spending to amass money for future needs.

If you want to check out a charity that doesn't appear on the table, take these fact-finding steps.

1. Scrutinize any come-on carefully. When you get a telephone fund-raising pitch or a mailing, be certain that the charity spells out exactly what it wants to do with your money. Borochoff says that the charity should not merely give dramatic details of some "urgent need." It should instead provide concrete information on what it's doing to address the problems it describes, such as the number of people the group fed, the dollars spent on medical research grants or the acres of land it protected. Also, find out how much of your donation will be spent on charitable activities, as opposed to administration or fund raising.

2. Request the financials. If you want to do a more thorough analysis, ask the charity to mail you its three most recent Form 990 federal tax returns as well as its most recent annual report. You can use either the annual report or the tax returns to learn how program spending and fund-raising costs stack up as a percentage of the charity's income. Unfortunately, you may well have to sort through all the data and footnotes and do the calculations yourself. A recent NonProfit Times poll found that only 14% of 48 charities it surveyed took the trouble to display their vital financial statistics in easy-to-read graphs or pie charts.

3. Check with the watchdogs. The NCIB (212-929-6300), CBBB (703-276-0100) and AIP (314-454-3040) publish useful free pamphlets summarizing their ratings and offering guidance on giving. If you want to learn more about a religious charity, try the Evangelical Council for Financial Accountability (800-323-9473). This organization requires its 850 religious members to adhere to broad standards such as independent board governance and truthfulness in fund raising. By calling, you can learn whether the charity you're interested in belongs and also get a complete list of the members. An independent source like these four can help give you the lowdown on whether the charity you're considering funding is on the up and up.