Money market funds are out (or at least down); bank accounts are in. With savings yields low and savers' anxiety high, financial planners are scrambling to find safe places for cash holdings, along with yields that actually enter single-digit territory.

"I've been using an account that pays 1.05%," says Rich Chambers, founding partner at Investor's Capital Management in Menlo Park, Calif. "That may not be great but, as I tell clients, that's 105 times better than a money market fund paying 0.01%."

Credit market normalcy may still be far away. Overall bank lending continues to contract in the face of a weak economy; in the second quarter of 2009, commercial bank delinquency rates for loans and leases reached a record high rate of 6.5%, the Federal Reserve reported. As a result, the Fed is likely to maintain its target Federal Funds rate in the 0% to 0.25% range, as it has been since last December, which would keep all short-term rates at low levels.

PEAK PAYOUTS

So where can planners find decent but safe yields for clients' cash these days? A little searching can find above-average opportunities. At iMoneyNet.com, for instance, the top-yielding retail money market fund recently was Waddell & Reed's Cash Management entry, with a seven-day yield of 0.85%. Ivy (0.71%) and USAA (0.63%) had the next two highest yields. At Bankrate.com, yields on these liquid accounts currently go as high as 1.7%. Contrast this with the average money market yield now: It's a scant 0.36%, according to Susan Moore, a financial planner in Watertown, Mass.

Many clients will find a tax-free money market fund even more appealing. IMoneyNet.com reports that Marshall Tax Free Money Market Fund recently paid 0.76%, almost as much as the leading taxable fund, while Marshall's institutional tax-free fund was paying 1.00%. (These funds are offered by Marshall & Ilsley, parent of the largest bank in Wisconsin.) USAA Tax Exempt Money Market Fund was a close second on the retail side, paying 0.73%. "Tax-exempt money funds seem to have an edge over taxable funds, even if the difference isn't great," says Frank Arvai, president of Mutual Fund Management Co. in Troy, Mich.

Money market funds have a long history of safety, but there have been exceptions. Last year's problems at the $60 billion Reserve Primary Fund, which several broker-dealers used for clients' cash accounts, still haven't been completely settled; they exposed investors to losses that might reach 8 cents on the dollar. (They also exposed Reserve executives to a lawsuit by the SEC.)

Beyond money funds, auction-rate securities were touted as safe, liquid cash equivalents. Then, the collapse of that market generated steep losses for investors.

With these disasters still fresh in the minds of many clients and planners—and the Treasury Department's guarantees of money market deposits now having expired—FDIC-insured bank accounts are increasingly appealing.

MONEY IN THE BANK

Even so, bank deposits are not fool-proof. Through August, 83 banks failed in the U.S. this year, including multibillion-dollar giants Colonial BancGroup, BankUnited and Guaranty Financial. Nevertheless, bank customers have not lost any funds covered by federal deposit insurance.

For depositors, coverage from the Federal Deposit Insurance Corp. (FDIC) is more generous than ever. Last year Congress expanded federal insurance from $100,000 per depositor per bank to $250,000, and the increased coverage will continue through 2013. Using creative techniques such as joint accounts and trust accounts, a client can cover multiple millions of dollars at the same bank.

"I'd been using Schwab Value Advantage Money Fund," Chambers says, "but the yield there has fallen to 0.01%. Thus, I've switched funds to Schwab Bank, where a high-yield checking account pays 0.75%, with liquidity and FDIC insurance. I'm also using Schwab's High-Yield Investor Savings Account, where the yield is 1.05%."

Some banks may still offer relatively high rates to attract deposits, despite their FDIC backing. At Bankrate.com, yields on bank savings accounts currently go as high as 1.7%. While the average yield on a one-year CD is around 1%, Bankrate.com lists several banks paying as much as 2%. Clients who want to hold cash reserves for several years can benefit from the bump in yield that comes with longer-term certificates. Two-year CDs may yield almost 2.5%, according to Bankrate.com, while clients can lock in more than 3% on five-year CDs from some banks.

RICHER REWARDS

Even higher yields are available at community banks and credit unions that offer "reward checking" accounts. Yields generally are 3% or more; some top 5%, with no fees or minimum balances. Clients can find participating local banks at CheckingFinder.com or get a list of the highest rates, nationwide, at MoneyRates.com.