Keeping your interest up: interest-paying alternatives to soaring bank fees.

Is it us, or does it seem that the banking industry is out to drain your account dry? Fees, fees and more fees sapping your balance might make you think twice about the age-old mattress storage routine. Take heart, though. There are still ways to earn interest in excess of 5.5% and still have an account liquid

Our recommendation: try money market mutual funds and money market accounts. Both are liquid, pay very competitive interest rates and, furthermore, allow you to tap your savings--much like an interest-paying checking account. Some money market mutual funds currently offer yields of 5.5%. They are offered by most of the large fund complexes and invest in government securities and short-term investments issued by localities, the federal government and corporations. Their popularity has soared, particularly after bond mutual funds got walloped in 1994. The Investment Company Institute in Washington, D.C., reports that since 1994, assets in money market mutual funds have risen to $290.8 billion, while bond funds have risen only202.5 billion.

Money market funds are attracting investors because they practically guarantee your principle, although their interest rates fluctuate according to the overall financial environment. That said, "Money market mutual funds are out-yielding everything in their competitive short-term universe," says Peter Crane, an analyst with IBC Financial Data, an Ashland, Massachusetts-based research firm that tracks investment yields. And while mutual funds aren't insured, Crane says they're so closely regulated that any risk to your hard-earned funds is negligible--in fact, retail investors have yet to lose a cent in money market funds.

Money market mutual funds fall into three categories: (1) general purpose, which invest in government securities and short-term bonds offered by banks and companies; (2) government-only funds that stick to U.S. Treasury or federal agency debt; and (3) tax-free funds that invest in securities issued by municipalities, states and the U.S. government. Gains posted by general purpose and government-only funds are taxable. Tax-free funds, on the other hand, make the most sense for investors in higher tax brackets.

Money market accounts are bank-sponsored and FDIC-insured up to $100,000, and offer a guaranteed interest rate. Although their yields tend to trail money market mutual funds, "the highest yielding money market accounts are competitive with the best performing money market mutual funds," says Martin Bradshaw of the Seattle-based Bradshaw Financial Network. Either way, you plug into high interest rates and still retain the option to get your cash when needed.

What about CDs? We'd shy away from them for a couple of reasons. If you need tO tap into your money before a CD matures, you'll have to pay a hefty withdrawal fee of three to six months' interest. More importantly, money market mutual funds and money market accounts are paying comparable interest rates.

Here's what to look for in a money market fund or account. First, remember that some funds try to boost yield by temporarily erasing fees and expenses they'd normally charge. Later, when the fees are reimposed, your yield drops (see chart, this page, for funds that deliver high yields without waving fees). Second, if you're applying for a money market account at a bank, find out if you can link its balance to your other accounts. That way, it can contribute to the minimum balance you need for free banking privileges.

High-Yield Money Market Funds
                                     MINIMUM INITIAL
TAX-FREE                   YIELD(*)    INVESTMENT        PHONE
Strong Municipal               3.33%     $2,500    800-368-3863
Vanguard Municipal Bond        5.38       3,000    800-662-7447
USAA Tax Exempt                3.14       3,000    800-382-8722

GOVERNMENT ONLY
Vanguard/Federal Portfolio     5.12%     $3,000    800-622-7447
Kemper Government Money Fund   7.35       1,000    800-537-6001
Lake Forest Money Market       5.30       2,500    800-592-7722

GENERAL PURPOSE
Vanguard Prime Portfolio       5.16%     $3,000    800-622-7447
USAA Money Market              5.09       3,000    800-382-8722
Kemper Money Market            5.22       1,000    800-537-6001

(*) As of 3/5/97