Options for stashing your cash

AP News
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Posted: Dec 18, 2009 6:48 PM

Those who lament the scant rates on their savings may want to review where they stand.

Here is a quick look at low-risk options and some of the pluses and minuses of stashing your cash in each:

SAVINGS ACCOUNTS

Banking your savings the old-fashioned way can seem particularly unsatisfying when it's earning less than 1 percent a year. That still outpaces inflation _ for now.

Ease of access and a high safety level help make this an acceptable choice for a portion of your money. But you may not want to put longer-term savings here.

CHECKING ACCOUNTS

These are where a lot of people stash extra cash, but they are not wise vehicles for savings. Interest is low or nonexistent, and fees can nibble at your money. The big draw is ease of access to your cash.

CERTIFICATES OF DEPOSIT

Long a popular savings option, CDs have lost a lot of their luster with rates plummeting. The best yield available nationwide on a shorter-term CD is just 2.23 percent, according to Bankrate.com, and that is for a two-year term. That drops to 1.83 percent for a one-year CD and 1.39 for six months.

If you really want a guaranteed rate of 3 percent or more you can find one with a five-year CD. But locking up your money in a CD for more than a year will leave you unable to shift your money into something that pays better when market conditions change.

MONEY-MARKET DEPOSIT ACCOUNTS

Money-market accounts have better rates than savings accounts but some restrictions. They invest in low-risk instruments like bank CDs and short-term loans to companies.

These are good choices when inflation is closer to its historical average of 3 or 4 percent _ less appealing now when it's near zero. As a result, the best annual percentage yield to be had anywhere at the moment is 1.6 percent, according to Bankrate.com.

MONEY-MARKET FUNDS: Money funds, as they also are known, are not bank products but mutual funds. They invest in short-term debt but usually earn higher interest than money-market deposit accounts and savings accounts, since they are not FDIC-insured and entail slightly more risk.

Not now, though. Taxable and non-taxable money funds both have record-low total returns of 0.25 percent over 12 months, according to the Money Fund Report, published by iMoneyNet.

U.S. BONDS

Treasuries are U.S. government debt obligations, issued by the Treasury Department to pay for government projects. They get the highest possible marks for safety since they are guaranteed by the government, but because they are the ultra-low risk investment they also don't pay much in interest. Rates vary based on the term.

They are easy to buy, without a commission, at TreasuryDirect.gov, and are exempt from state and local taxes. Beyond the safety factor, however, you can almost certainly make more on your money elsewhere over the term.

I-BONDS

These inflation-linked U.S. savings bonds have a fixed rate of interest as well as an adjustable component that resets periodically to reflect the change in the Consumer Price Index. Their current yield is 3.36 percent. You can buy a maximum $5,000 a year in I-bonds at http://www.treasurydirect.gov.

The downside: You can't redeem them for at least a year, and if you do so within five years you'll forfeit the three most recent months' interest. But that yield is hard to beat these days for a low-risk investment if it's savings you won't need to draw from immediately.