(September 2006) By now, the history of the bursting stock market bubble and the ensuing flight to safety has been well documented. Suddenly risk-averse investors went hunting for yield at the same time that central bankers were slashing interest rates, killing the appeal of some traditional safe-havens.

But money market holdings have been consistently on the decline for some time now. According to IFIC, money market assets have fallen to about $42 billion, which is roughly where they were in June of 2000. In the past three years alone, outflows have totalled $18.5 billion, according to the latest edition of Investor Economics Insight.

So where have these assets been landing? It seems unlikely that investors have reallocated these funds to more risky asset classes.

According to Insight, money market funds have been stripped in favour of premium savings accounts, either in the form of high-interest savings accounts (HISAs) or tiered savings accounts (TSAs), which offer interest rate bonuses on higher balances.

Looking back at data collected in December 2004, savings were fairly evenly split between money market funds and premium savings accounts. By June 2006, however, that balance was tilted in favour of savings accounts, which held 62% of assets. That’s no small chunk of change in a market worth $111 billion.

According to Insight, there are only three banks offering TSAs — RBC, CIBC and TD. These three banks alone share $23 billion in assets, though, and have been growing at a compound annual growth rate of 45% over the past three years.

Far more accessible are the HISAs, which offer an interest rate premium on every dollar deposited, usually with no minimum balance. These accounts hold $46 billion, with the heaviest concentration held at ING Direct, Scotiabank and BMO. These assets have been growing at a much slower — through still quite impressive — annual rate of just over 26% over the past three years.

That slower growth rate may be attributable to a more mature market, but the market has seen increased competition recently, with at least 15 deposit-takers vying for assets. The HISA segment has grown its assets by 6% in the first half of 2006, according to Insight, while the TSA segment has remained flat.

That may not be too surprising, as the top interest rate on the tiered accounts is generally still lower than the best rates paid on the HISAs.

Overall, account sizes remain small, which could be taken as a sign that investors realize that these are simply a parking place for money they may need, and not a core holding of an overall portfolio. Only 2% of balances exceed the CDIC’s maximum insured deposit of $100,000. The vast majority of balances (87%) are below $25,000, and 64% hold less than $5,000.

Premium interest accounts are still dwarfed by traditional savings accounts, but have grown to 30% of the market.