Some Blue Chip Baskets For Your Nest Egg

Major corporations raise short-term funds by selling commercial paper to big institutions in million-dollar chunks. But now, one of the largest issuers of commercial paper, IBM, is using a proprietary money-market account to tap another fund source: individual investors.

The account acts like a money-market fund, but instead of maintaining a diversified portfolio, it puts all its eggs in one gilt-edged basket: IBM's credit subsidiary. The company established the account two years ago for IBM employees and opened it to the public last October. To date, it has raised more than $800 million from tens of thousands of investors.

The account has two main selling points: security and performance. IBM claims your money is safe because it is invested in AAA-rated notes. IBM also promises the account's yield will top the U. S. retail money-market fund average as measured by IBC/Donoghue's Money Market Fund Report.

So far, the company has delivered. In 1990, IBM's average seven-day yield was 7.84%, compared with 7.56% for the Donoghue index. As of Mar. 18, the fund was paying 6.5%, vs. the money-market average of 6.15%.The setup isn't bad, either. You don't pay account fees or charges for checks and direct deposits. You can open an IBM account with a minimum of $2,500 by calling 800 426-9876. There's a $500 minimum for checks.

UNINSURED. Of course, one of the main features of the account is also its biggest drawback: lack of diversification. And unlike a bank money-market account, IBM's is not federally insured. You have to judge whether to put so much faith in the financial strength of one company. "I wouldn't want to have a large amount of assets tied to any single issuer," says Michael Lipper, president of Lipper Analytical Securities.

The folks at IBM claim that's no problem because you're investing with one of the bluest of blue chips: "It may not be diversified, but that's not always bad, because you know exactly where your money is," says Michael Chen, program manager of the IBM account.

Other companies are using similar methods to raise capital. General Motors Acceptance Corp. opened its five-year-old employee demand-note program to GM shareholders in January, 1990. Like IBM, GMAC (800 255-4622) uses money borrowed from its "variable rate demand notes" for operations. The minimum investment is the same as the check-writing minimum: $250. GMAC guarantees that yields will never fall below the three-month Treasury bill rate. At last count, the GMAC account was paying 6.44%. Ford Motor Credit Co. and AT&T Credit Corp. also are players in company money accounts, but so far theirs are open only to employees and retirees.

                  Simple yield
             As of Mar. 18, 1991
      ACCOUNT         6.50 %
      DEMAND NOTES    6.44
      AT&T MONEY-
      MARKET ACCOUNT  6.15
      AVERAGE         6.15
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