Accounts That Do It All

With interest rates falling to their lowest levels in decades, millions of savers have been jolted out of their inertia. Once content to park money in bank certificates of deposit, they are now open to alternatives that can give them more services and better rates of return. This awakening has not escaped the notice of retail brokerage firms. And as they first did in the late 1970s, they are using asset-management accounts as the weapon of choice in luring customers away from banks.

The basic asset-management account has a checking, securities, and money-market-fund account all rolled into one. "We allow you to put a lot of assets into one pot," says Gerald Cremins, director of asset-accumulation services at Merrill Lynch.

With the market so competitive, brokerage firms are adding enhancements to make their products more attractive. Shearson Lehman Brothers, for example, is about to relaunch its Financial Management Account (FMA) with such new features as an automated-teller-machine card and automatic funds transfer between Shearson and your bank of choice. PaineWebber is starting an investing magazine for its Resource Management Account customers. And Merrill Lynch, whose Cash Management Account (CMA) is the granddaddy of these products, is now allowing you to link your CMA to your individual retirement and trust accounts and to other family members' CMAs. "Competition has resulted in better overall yields, better access to funds, and more services among these accounts. All of this has been extremely beneficial to individual investors," says John Markese, director of research, American Association of Individual Investors (AAII).

PRIVATE INSURANCE. Brokerages have even strengthened their account safety nets to ease the jitters of bank customers nervous about giving up the security of federal deposit insurance. Many provide private insurance on top of the $500,000 per brokerage account in securities and cash coverage from the quasi-public Securities Investor Protection Corp. For example, Dean Witter's Active Asset Account customers get free extra coverage of up to $25 million on their account. Merrill also offers the option of holding assets in an FDIC-insured savings account instead of a money-market fund.

The biggest selling point of asset-management accounts, which are also offered by many regional banks and brokerages, is the same as it always was: convenience. For a fee of up to $125 a year, you get one consolidated statement every month that combines your brokerage activity, credit-card charges, and money-market-fund holdings.

Asset-management accounts also make your money work more efficiently because you can easily shift funds between the money-market account and stocks and bonds. Any cash that accumulates from dividends, interest, and securities sales gets automatically invested in the money-market account. And according to AAII's Markese, brokerage money-market funds frequently have better yields than bank money funds.

Both full-service and discount brokers offer asset-management accounts, but only the full-service firms assign each customer a broker. Their hope is that the broker will develop a close enough relationship to sell the customer other investment products. And while discount brokers' asset-management accounts are generally cheaper--Schwab's is free--they don't usually offer as many features as, say, Merrill's CMA. Schwab, for example, has no ATM access and just two money fund choices. Of course, at Merrill, customers pay full commission rates on stock trades while Schwab's are discounted.

You should consider a number of features when choosing an asset-management account. Among them:

-- Minimum. The amount you need to open an account ranges from $5,000 for Schwab One Asset Management account to $20,000 for Merrill's CMA. Ask whether you must always maintain that balance or whether you are allowed to fall below it.

-- Annual fee. It ranges from no fee for the basic FidelityPlus to $125 for Merrill's CMA with a Visa Gold Card. Merrill also has a Capital Builder Account for $65 a year that has a $5,000 minimum and offers only one money fund and three free checks a month.

-- Debit or credit card. Find out if the account offers a credit or a debit card. When you make a purchase with most debit cards, the amount is deducted immediately from your account. With Merrill's CMA, for an extra $25, purchases made with the Visa Gold Card are not debited until the end of the month. Shearson's FMA is the only one to offer an American Express Gold charge card.

-- Sweep features. How frequently are unused balances deposited into a designated money-market fund? Dean Witter sweeps every dollar daily, while Merrill sweeps amounts over $1,000 daily and amounts under $1,000 weekly.

-- Statement. Take a look at the monthly statement and see whether it is easy to read. Note the level of detail provided. PaineWebber tells you when you bought each stock, what you paid for it, and what your unrealized gains or losses are. At Merrill, clients with about $500,000 in their CMA receive a more sophisticated statement that shows, for example, that 9% of your total assets are in money-market funds and 6% are in government securities.

-- Mutual funds. PaineWebber offers a choice of five; Merrill's CMA has 13. Dean Witter's Active Asset Account offers money-market, tax-free, and government securities funds, plus one that is insured by the FDIC.

-- Checking. Most accounts offer free checking, but usually you pay for the checks. Find out whether you receive canceled checks. Merrill gives you copies of 15 canceled checks a year, but charges $3 apiece thereafter. Find out if there is any minimum on the amount you can write a check for and what the extra costs are, say, for checks returned for insufficient funds.

-- Check coding. Some accounts let you set up categories, such as tax-deductible or entertainment. You then write a code letter on each check, and at the end of the year, you receive a summary by category.

-- Customer service. Is there an 800 number, and what services are offered? Merrill has many 800 numbers, including ones for cash machine locations and for transferring funds.

-- ATM access. Which cash machine networks, if any, do you have access to, and how many machines will accept your card? Merrill has 98,000 ATMs worldwide. Also, is there a charge for ATM withdrawals? Merrill charges $1 for each one.

Eventually, brokerage firms may increase the required minimum because small accounts are not profitable, says AAII's Markese. But with interest rates expected to stay low for a few months and the stock market hot, competition among brokerages for customers' dollars will remain intense. That means the fees and features of some asset-management accounts could get sweeter. In this market, it pays to shop around.

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