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Ask the expert: What's the safest place to keep a million dollars?

June 14, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: If I care more about safety than earning interest, what is the best place to park a million dollars so I can draw $40,000 a year from it?

A: There was a time when the answer to this would have been relatively simple - when interest rates were high enough for you to secure your principal and earn enough income to meet your withdrawal requirements. Now, the answer is a little more complicated.

Since safety is your first priority, one approach would be to put your money into FDIC-insured deposit accounts, spread out enough so that you will remain under the FDIC insurance limit. That limit is $250,000 per depositor, per bank, though you can qualify for more coverage if some of the money is in an IRA or a joint account with your spouse.

In terms of deposit accounts, the right approach could involve some combination of CDs for the highest interest rates, plus savings accounts or money market accounts to meet your liquidity needs. At $40,000 a year, you will be withdrawing 4 percent a year from your account. 5-year CD rates average only 1.63 percent - and even the best CD rates these days won't get you close to 4 percent - which is why you might need a savings or money market account for liquidity.

Since CD rates, savings account rates, and money market rates are all well below 4 percent, one thing you have to recognize is that while you can keep your principal safe, by withdrawing $40,000 a year you will be drawing that principal down over time. So, you need to plan for how long you need to make that money last - and if you are planning for the long-term, don't forget to account for what inflation will do to the value of that $40,000 over time.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to the "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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