Taxable Funds Regain Their Edge
Rising rates have made taxable money funds the short-term savings champs
By Carolyn Bigda

(MONEY Magazine) – The Fed's steady stream of rate hikes continues to push up yields on all cash accounts, but not evenly. Among the biggest jumps: Rates on taxable money-market funds have more than doubled over the past year to an average of nearly 4% and now pay 1.4 percentage points more than the average tax-exempt money fund. A year ago the gap was only a quarter of a point. Why have tax-frees lagged? Their yields are set by supply and demand in the tax-exempt market, while taxable funds closely track general interest-rate moves. As a result, if you're in the 28% bracket or lower, you should look again at taxable money funds. To check which type of fund is best for you, divide the tax-exempt yield by one minus your tax rate. The result is the rate your taxable yield needs to beat. --CAROLYN BIGDA

SAVINGS NOTES AND SOURCES: CD and money-market account data as of Jan. 17 from 100 Highest Yields ($124 for 52 issues; 800-327-7717). Average tax-exempt and taxable money-market fund yields for the week ending Jan. 17 from Money Fund Report (imoneynet.com); all have a minimum investment of $10,000 or less and assets of $25 million or more. Average bond fund yields for the month ending Dec. 31 from Lipper; all are medium- and high-quality funds without sales loads and with average maturities of three years or less. [1] Manager absorbed all or some operating expenses. [2] Closed to new investors, except Bank of America customers.

CREDIT NOTES AND SOURCES: All rates subject to change. Credit-card rates are for standard cards as of Jan. 17 from Bankrate.com and are variable unless otherwise indicated. Survey does not include Internet-only cards or AmEx Blue. [1] Visa only. [2] Fixed rate. [3] MasterCard only. [4] Platinum and gold cards.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.