Whether you've got $1 million in government bonds, $100 in a passbook savings account or $2,500 in a money market fund, you're in the money market. So unless you keep your spare money in a sugar bowl or sewn in a mattress, you'll want to know more about the relative safety and yields of money market investments.

We are all becoming increasingly aware that it isn't smart to leave idle funds in non-interest bearing checking accounts or low-interest passbook accounts because there are so many safe and convenient ways to earn higher yields.

Americans today have over $5 trillion of savings in commercial banks, savings and loans, money market funds, government securities, municipal notes, commercial paper, short-term bonds and other money market holdings.

There are so many interest-bearing options available that you're throwing money away if you're not earning a return on every cent you have except your pocket money. But you have to take the time to find the investments that not only provide the safety you desire, but also leave you with the most after-tax dollars.

Certain money market investments are extremely safe; others may be much riskier than they appear. At times, some of the highest yields are available from instruments offering the highest safety, and certain low-yield investments may have a very high degree of risk.

The four major categories of money market investments available to most people are: (1) federal government, (2) deposit accounts and debt instruments available at banks and savings and loans, (3) money market mutual funds and (4) short-term credit instruments issued by private corporations or state and local governments. Federal Government

Federal government instruments, which include obligations of the U.S. Treasury and other federal agencies, are the most significant segment of the money market in terms of total dollar amounts outstanding, dollar trading volume and their influence on the yields of other money market investments.

The most important market instruments are Treasury bills, notes and bonds. All of these are direct obligations of the U.S. Treasury and are the safest and most liquid -- readily convertible to cash -- investments in the money market. The security and liquidity of U.S. Treasury securities set the standard against which all other money market credit instruments are measured. Because of the extremely high security and liquidity of Treasury obligations, investors are generally willing to accept a lower return from them than from other money market instruments.

You can buy Treasury securities through the commercial system, which includes security dealers, brokers and commercial banks, or directly from the federal government. (A free copy of "Buying Securities at Federal Ressrve Banks" may be obtained by writing the Federal Reserve Bank, Public Relations Department, P.O. Box 27622, Richmond, Va. 23219).

There are other government securities outstanding which are also full faith and credit obligations of the U.S. government, but they are no longer issued or are no longer being issued on a regular basis. These include Farmers Home Administration insured notes, Federal Housing Authority debentures, General Service Administration certificates, Small Business Administration debentures, Student Loan Marketing Association notes (Sallie Maes) and Government National Mortgage Association obligations (Ginnie Maes). When the yields from these instruments--which are actively traded in secondary markets -- are higher than the yields from a Treasury obligation of comparable maturity, they should be considered equally safe alternatives.

Some obligations of federal agencies or federally sponsored corporations are neither direct obligations of the U.S. Treasury nor guaranteed by the federal government. Each agency or federally sponsored corporation has its own credit rating, and yields from these will usually be higher than from direct Treasury obligations. How much higher will depend on the market's assessment of the credit worthiness of the particular agency or federally sponsored corporation. Government instruments in this category included Federal Home Loan Bank bonds, Federal National Mortgage Association notes and debentures (Fannie Maes), and Tennessee Valley Authority notes and bonds.

As a general rule, earnings from Treasury obligations or from obligations of federal agencies are subject to full federal taxation but are exempt from state and local income taxes. Earnings from obligations of government-sponsored corporations, such as Ginnie Mae and Fannie Mae, are subject to full federal, state and local taxation. Depository Institutions

Depository institutions fall into two general categories: commercial banks and "thrift institutions." The latter group includes savings and loan associations, mutual savings banks and credit unions.

Yields available from deposit accounts and credit instruments of depository institutions range from some of the lowest to some of the highest available in the money market. Investors must take extreme care to understand how the interest rates are calculated and the maturity terms, as well as penalties which may be imposed for early withdrawal from the account.

The informed investor is interested in earning the highest possible yield without compromising the safety of hard-earned savings. As a general rule, deposit accounts of $100,000 or less in almost all banks and thrift institutions are insured by an agency of the federal government: The Federal Deposit Insurance Corp. (FDIC) insures accounts at commercial banks and mutual savings banks; the Federal Savings and Loan Insurance Corp. (FSLIC) insures accounts at savings and loan associations; the National Credit Union Administration (NCUA) insures accounts at credit unions.

Investors who purchase credit instruments, such as repurchase agreements, commercial paper or bankers acceptances, from depository institutions or who buy Eurodollar CDs (certificates of deposit) must rely on the credit worthiness of the issuing banks or S&L, as these instruments or deposits carry no federal insurance. Nor is there any federal insurance on amounts in excess of $100,000 in a deposit account.

The full details of a new type of money market account at depository institutions, which will be very similar to plans available at money market mutual funds, will not be announced until early December. Investors should carefully examine these new accounts, as they will earn market rates of interest and carry full federal insurance.

Sweep Accounts, although not yet widely available in the Washington area, will be increasingly offered. The accounts have the advantage of transferring funds over a stipulated balance directly into a money market fund that will yield market rates. However, investors should be aware that money transferred from their federally insured account into a money market fund sweep account is no longer protected by federal insurance.

The income from deposit accounts and credit instruments of depository institutions is fully taxable at the federal, state and local levels. Money Market Funds

The yields of money market funds vary widely and fluctuate daily. While offering the advantages of high yields, ease of acquisition, almost instant liquidity, diversification and professional management, they do not offer the protection of federal insurance.

In practical terms, the safety of a particular money market fund is determined by the composite risk characteristics of the instruments in which the fund invests. For example, a fund that invests only in U.S.-guaranteed securities would be regarded as safer than one which invests a majority of its assets in commercial paper or Eurodollar deposits.

There are three major categories of money market funds:

* "T-funds" hold only securities which are either direct obligations of the U.S. government or guaranteed by it.

* "G-funds" invest in eveything that T-funds do, plus government agency or government-sponsored corporation instruments that may not be fully guaranteed or insured by the federal government.

* General-purpose money market funds may hold any of the above in addition to other money market instruments, such as certificates of deposit, bankers acceptances, commercial paper and Eurodollar deposits. Investors should expect the fund that invests in higher risk instruments to return a higher yield, but caution is indicated because this is not always the case. Municipal Securities

Investors in high income tax brackets should investigate municipal securities -- the debt instruments issued by state and local governments and their agencies -- because the interest generated from these is exempt from federal taxation and frequently from income taxes levied within the issuing state.

An investor whose income is federally taxed at 50 percent would have to earn 10 percent in a non-exempt investment to equal a return of 5 percent from a municipal note or bond ("muni"). For an investor living in a locale with high state or city taxes, ownership of a "muni" issued within that state would be even more attractive.

The safety of a municipal security depends on the credit worthiness of the state or local government that issues or guarantees it. Some municipal notes are backed by the full faith and credit of the federal government. The most popular of these guaranteed notes are issued by local housing authorities to finance federally sponsored programs. Their relative safety is very high -- comparable to other federally guaranteed agency securities.

Firms such as Moody's, Standard & Poor's and Fitch assign credit ratings to many publicly offered notes and bonds of states, counties and cities. Corporate Bonds And Commercial Paper

The relative yields on individual issues of commercial paper and corporate bonds depend on their maturity terms and on their credit ratings. Commercial paper is a short-term obligation (270 days or fewer), while bonds are generally long-term obligations with maturities of at least one year and frequently five, 10, 15 or 30 years from the date of issue.

As with municipals, rating firms such as Moody's, Standard & Poor's and Fitch regularly rate these obligations. Income from corporate bonds and commercial paper is taxable.

Each of the investment alternatives you will consider can produce different yields and can vary in safety, maturity and liquidity characteristics. And some will produce income which is partially or wholly tax exempt. Before you can decide on the specific money market option or combination of options most suitable for you, you'll need to evaluate your financial position, your tax status, and the amount of time and effort you're willing to devote to your money market investments