(FORTUNE Magazine) – With the economy laboring under threats of war and recession, Americans have flocked to cash, shifting billions of dollars into short-term investments. Experts usually advise families to keep the equivalent of three to six months of living expenses in savings accounts and other liquid assets. According to Steven Weinstein, a partner at Arthur Andersen in Chicago, more people are now increasing their reserves to closer to 12 months. Shifting to cash has not meant putting up with lackluster returns, even - though interest rates this year have declined more than half a percentage point. In the past 12 months the Standard & Poor's 500-stock index has fallen some 3%, while money funds on average provided a 7.8% return. Investors who want to park cash can choose among a wide array of alternatives and get strong yields without giving up a good night's sleep. You can't find a safer short-term investment than an IOU from Uncle Sam. Yields on 91-day, six-month, and one-year Treasury bills are around 7.20%, and the interest is exempt from state and local taxes. The best way to invest: Set up a Treasury Direct account by contacting any Federal Reserve branch. You may purchase T-bills in person or by mail with a minimum initial investment of $10,000. The service is free; if you buy T-bills through your broker, you'll pay a transaction fee as high as $50. Bank money market accounts carry FDIC insurance for amounts up to $100,000, making them nearly as safe as Treasuries. Be prepared to sacrifice some yield: According to the newsletter Bank Rate Monitor (800-327-7717), such accounts on average earn a relatively meager 5.98% a year. But its sister publication, 100 Highest Yields, reports that investors can find yields close to 8%. At the top of its list is the Metropolitan Bank for Savings of Arlington, Virginia (800-365-4351). It offers 7.98% for a minimum deposit of $25,000. Other high-ranking banks: First Deposit National of Tilton, New Hampshire, offering 7.85% for a $5,000 minimum (800-821-9049), and Key Bank USA of Albany, New York, 7.82% for a $2,500 minimum (800-872-5553). Bank certificates of deposit are also insured for up to $100,000. On average they yield more than one and a half X percentage points above the typical bank money market fund: 7.60% on a one-year certificate, according to the Bank Rate Monitor. Citytrust of Bridgeport, Connecticut (800-972-9477), offers an annual effective yield of 8.57% for a minimum deposit of $10,000; and Maryland National Bank (800-222-3222) offers an 8.55% yield for a $1,000 minimum. Money market mutual funds invest in a wide variety of short-term paper and carry no government guarantee. However, no money market mutual fund has ever lost X investorXs money, and the extra risk brings a nice reward: According to IBC/Donoghue's Money Fund Report, the funds' average compound rate of return is 7.53%. Two that have consistently ranked among top performers: Alger Money Market (800-992-3863) with a recent yield of 8.47% and GW Sierra Global Income ; Money Market (800-222-5852) with 8.46%. The typical minimum investment: $1,000. Some funds aimed at supercautious investors can offer an implicit guarantee because they invest in Treasuries, government-agency securities, and instruments collateralized by Treasuries. IBC/Donoghue reports that assets in these so-called government-only funds have rocketed 41% since Iraq invaded Kuwait. Highest-yielding among them is Benham Government Agency (800-472-3389), which recently paid 8%. Unlike most of its rivals, Benham limits itself to securities exempt from state and local tax. Money funds that invest in municipal bonds are exempt from federal income tax. On average such funds yield 5.45%; for investors in the 28% federal tax bracket, that translates to a 7.57% equivalent yield. Dreyfus Michigan Municipal Money Market (800-829-3733) leads the pack with 6.35%, or an 8.82% equivalent yield. Another top-ranked muni fund is Evergreen Tax-Exempt Money Market (800-235-0064), yielding 6.22%, or 8.64%. For investors seeking an extra half percentage point or so above the typical money fund rate, IBM and General Motors offer their own variants. The IBM Money Market Account (800-426-7777) yields 7.92% and requires an initial $2,500 investment. GMAC Demand Notes (800-255-4622) yield 7.85% and require a minimum investment of just $250 but are available only to GM employees, retirees, dealers, or shareholders (a single share is enough to qualify). These Xprograms raise capital for the companies' finance subsidiaries. Since they invest in a single company's debt, they are riskier than conventional money funds, which diversify their holdings. But both Moody's Investors Service and Standard & Poor's give the short-term debt of IBM and GM their highest rating.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: BETTER THAN A MATTRESS Short-term investments offer attractive yields, which increase with risk. None of these are scary.