Money market funds are good for big savings

On Mondays, we answer a question from a reader. If you have a question, please post it in the comments section.

QUESTION: I am saving up a large amount for an emergency savings fund. I'd like to put it somewhere that I can access it, but where I can't get to it easily to remove temptation to spend it. Is there anything that fits that definition?

ANSWER FROM DAN DANFORD: I like money market mutual funds. These are genuine mutual funds where the portfolio is invested in short-term government or corporate bonds. They use a special accounting system where the share price is held at $1.00. Dividends are credited daily, and paid monthly, so you'll draw solid market rates even on balances that last a few days.

Unlike bank deposits, daily rates are determined by bonds in the portfolio. So, if rates are rising, you'll see increased yields almost immediately. Bankers decide how much they'll pay (often determined by competition), and they are slow to raise rates. Occasionally, you'll see higher rates in local markets, but that often signals that a bank is looking for additional capital - a red flag. Bank deposits are covered by FDIC and money market funds are not. Still, shareholders of the fund own a pro-rated portion of the portfolio, so risks are minimal.

Most money market funds offer free checking services, but if you want to make it tougher to withdraw, decline them. Then, you'll have to telephone for withdrawals and they'll mail a check to your home. That will take a few days and should take impulse buying off the table. Good luck.