Here is a rundown of the most popular alternatives to passbook savings and a brief description of each:
MONEY MARKET FUNDS -- A kind of mutual fund in which each investor owns a share of the pool. Most of these funds call for a minimum deposit of at least $1,000, making them off-limits to the small saver. They can be withdrawn at any time, much like a regular savings account. The interest rate fluctuates with the market; it peaked in April at 16.29 percent -- more than 10 percent higher than the passbook ceiling -- and has since fallen to 8.6 percent, only 3.1 points higher than the passbook ceiling at federal chartered savings and loans. The funds are invested in Treasury notes and commercial paper, both low risk, but are not federally insured.
MONEY MARKET CERTIFICATES -- Created in June 1978, in party to give banks and thrifts a way to compete with the burgeoning money funds. These are six month certificates of deposit whose interest rate is tied to the yield on six-month Treasury Bills, which are sold at weekly auctions, they require a $10,000 minimum deposit and are federally insured. There is a penalty for withdrawing the money in less than six months. Because the rates move with the market, the interest on these peaked in late March at 15.1 percent, almost 10 points above the passbook ceiling. It has now dropped to 8.1 percent, less than three points above the ceiling.
SMALL SAVERS CERTIFICATES -- Much like the Money Market Certificate, except these take 30 months to mature and have no fixed minimum deposit Availabe since January 1980, they made high-yield certificates available to small savers, but not to those who couldn't afford to tie up their money for 30 months at a time. The interest rate, tied to the yield on 30-month Treasury notes, peaked at 10.75 percent at federally chartered savings and loans (10.5 percent at commercial banks in April.
U.S. TREASURY BILLS -- Essentially a loan to the U.S. government, the bills are sold at weekly auctions, in varying denominations and for widely varying terms. The six-month Treasury bills sold in denominations of $10,000 peaked in late March at 15.1 percent interest. Last week, they stood at 8.1 percent.