The advantage of tax-free money funds

CLARKONOMICS: Clark recently got a call from someone who had CDs maturing and they were facing absolutely pathetic renewal rates. He wants to re-emphasis what he told the caller: There's a way to put money aside that will earn a better deal, is ultra-safe and traditionally has been for the ultra-wealthy: Tax-free money funds. With a tax-free money fund, you put money in and then get a checkbook to write checks. Normally, tax-free money funds pay lower rates than their taxable counterpoints. But right now the oddball financial climate has flipped that scenario on its head. Even someone in a lower tax bracket can benefit from a tax-free money fund right now.

The two bigs in this field are Fidelity and Vanguard. Fidelity is paying around 2.66% APY (with a minimum opening deposit of $5K, plus the minimum check size you can write is $500). Vanguard, meanwhile, is paying around 3.08% APY (with a $3K minimum opening deposit, but you'll incur monthly fees if you're below a $10K balance). Vanguard's historically low management fees account for their higher rate. If you earn more than $100K/year, tax-free money funds are probably a better choice than a traditional savings or taxable money-market fund.