Savings: No good place to stash your cash

Near-record-low interest rates are driving savers to “do desperate things,” said Jason Zweig in The Wall Street Journal. Most taxable money-market funds are yielding a measly 0.1 percent or less. “On a $10,000 balance, that will earn you a maximum of 83 cents—yes, $0.83—in monthly interest income.” That’s why many savers are stashing their cash in bonds: In August, investors put $40 billion into bond funds, the most ever for a single month. “That mightn’t be troubling if investors were merely taking baby steps out of money-market funds.” But instead of investing in short-term bond funds, most seem to be plowing money into intermediate-term or junk-bond funds. When rates do go up, the longer-term bonds could “get slaughtered.”

Treasurys are typically the preferred option for steady-if-uninspiring returns, said Elizabeth O’Brien in SmartMoney. Yet some experts consider them “one of the worst investments out there” right now. When last year’s economic crisis hit, investors fleeing to safety stocked up on U.S. government bonds, and rising demand drove prices up and yields down. “Now many professionals think the bonds pay far too little interest to keep up with future inflation.” Investors can find relatively safe income from municipal bonds, which pay for roads, schools, and other public projects. Currently, tax coffers are depleted in many places, but “most pros” think that municipalities won’t have problems paying back the loans.

If you’re determined to increase your short-term yield, said Susan Ladika in Bankrate.com, you can “ladder” certificates of deposit by spreading your money across accounts that mature at different times. Treasury Inflation-Protected Securities, or TIPS, may also be a good bet, since rising interest rates and rising inflation often go hand in hand. But low rates won’t last forever, so the best strategy may be simply to accept a measly return for now. “For many savers, highly liquid accounts are an even better place to keep money than short-term CDs.” Keeping funds in a savings or money-market ­account will give you the liquidity necessary to quickly move back into the market when rates pick up.

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