Higher yields on savings? It will be awhile

  @Money October 25, 2012: 6:02 AM ET
Federal Reserve

The Federal Reserve is targeting unemployment.

(Money Magazine)

Waiting for higher yields on savings? Don't hold your breath.

The Federal Reserve said in September it would buy $40 billion of mortgage-backed securities a month until the labor market rebounds. The goal: to free up banks to lend more.

It's the Fed's third attempt since 2008 to use this tactic, called quantitative easing.

Targeting the 8%-plus jobless rate, QE3, as it's known, is likely to hold down mortgage rates which in October hit a 60-year low of 3.36%.

Bernanke's QE3 announcement in 90 secs

The Fed also plans to keep short-term rates near zero through mid-2015, so get used to current savings yields (recently averaging 0.12%).

And if you're looking to beef up bond fund income, Morningstar Investment Management economist Francisco Torralba suggests short-term corporates, which yield about 2% today. Though the risk of inflation is low, he says, a spike would hit higher-yielding long-term bonds harder.

Related: Bond investing basics To top of page



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