Park your cash in a safe place

Before you sock your rainy day funds under the mattress, consider these safe-haven options, which offer a better return.

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By Jessica Dickler, staff writer

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NEW YORK ( -- The stock market is volatile, banks are getting battered and everyone is talking about losing money. If you're feeling skittish about your savings, you're not alone.

While some people see a down market as a buying opportunity, others are just too jittery and want their money secure. Though cash and other "safe" investments might offer less of a potential return than stocks, they also come with less risk, and there is something to be said for peace of mind.

If you have a significant nest egg, and want to keep that money in a safe spot to ride out the storm while still earning interest, consider these options that promise a moderate return for little-to-no risk.

Money Market Accounts

Money market accounts are a good place to park an emergency fund or money you'll need relatively soon, and beat the interest rate on a standard bank savings account. In a money market account, the bank reinvests your cash into short-term securities, while offering you a competitive interest rate.

While the current average yield is about 0.72%, they range as high as 3.5% right now, according to Greg McBride, senior financial analyst at So "It pays to shop around," he said.

Money market accounts offer access to your money, but in return for the higher interest rate, there's usually a higher minimum balance requirement and a limit on the number of withdrawals allowed per month, typically around three to six. You can also only write a limited amount of checks each month, depending on the bank.

Bank money market accounts are considered safe because your money is insured by the Federal Deposit Insurance Corp., just like regular savings accounts - and your funds are still liquid if you foresee a need to use it in the near term.

Just don't confuse them with money market funds, which are a type of mutual funds, which may offer a higher yield but at a price. "Money market funds may invest in less secure instruments," said Tim Maurer, director of financial planning the Financial Consulate, and there's a possibility of actually losing money. Plus money market funds are not FDIC insured.


Certificates of deposit are another safe option, and are also available through your bank or from a broker. Like money market accounts, your deposit is insured by the FDIC up to $100,000, but CDs come with a set maturity date and you cannot withdraw funds without incurring a penalty.

Your interest rate is also locked in for that period of time. If you do need to withdraw early you will be charged a penalty, typically in the amount of six months worth of interest, and you may earn a lower interest rate for the time period of the CD.

The term of a CD generally ranges from one month to five years and can be bought in various denominations, depending on your bank. You must commit to invest that money for the full term of the CD, and the trade off is a higher rate of return. The average yield on a one-year CD is currently 2.3% but they range up to 4%, according to Bankrate.

Occasionally banks offer special rates on CDs if they need to raise cash so, again, it pays to shop around. But generally if you are looking at higher rate CDs, chances are there is a higher minimum deposit as well, noted Phillip Cook, a certified financial planner with Cook and Associates in Torrance, Calif. For example, some banks that offer 4% rates require a minimum deposit of $10,000 or higher.

Also, the highest yield may not necessarily be the best. Before IndyMac Bancorp Inc. collapsed last week, the bank was offering an annualized 4.3% on a six-month CD. "That's how badly they needed the money," Cook said.

One way to mitigate risk is to set up a CD ladder with CDs that have staggered maturity dates. One CD could mature in six months, another in one year and so on, so that you have a steady flow of cash, but continue to earn interest. Each year, the CD's proceeds at maturity can be withdrawn as income, or rolled over into new CDs.

Ladders are a good way to avoid the temptation to chase interest rates, McBride said. When interest rates are low, you get a lower yield; when they're high you get a higher yield, but your average yield is likely to beat any attempt to time the market.

They also provide cushions from the peaks and troughs of interest rates, although "right now I'd have my ladder extremely short because interest rates are likely to rise," advised Maurer.


Laddering can also be done with Treasurys, which are low-risk securities issued by the United States government. For example, if you had $50,000 to invest, you could buy five different Treasury notes (from a bank or directly from the U.S. Treasury at each with a face value of $10,000 and stagger the maturity dates over five or 10 years.

While Treasurys are not FDIC insured, they are fully backed by the U.S. government, and have a default risk close to nil. Because of their extremely low risk, Treasurys typically have low yields compared to other investments, but can offer a great hedge against the stock market.

Short-term Treasury bills, or "T-bills," currently yield about 2.3% and the 10-year Treasury note yields 4.04%.

Once you own a bond you can hold it until it reaches maturity, or if you need the cash sooner, you can sell it on the secondary market. But if interest rates rise from the time you purchased, you could potentially lose money since bond prices and interest rates move in opposite directions. "You may not be able to sell it for what you paid for it," explained Frank Boucher, of Boucher Financial Planning Services in Reston, Va.

But holding a bond until maturity is a safe bet. If there is a chance you may need access to the money in less than one year, short-term T-bills with 13-week or 26-week maturities are "the very safest investment you could possibly buy," Boucher said. To top of page

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