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3 safe options to CD

September 20, 2011

| Money Rates Columnist

Even if you're getting the best CD rates on the market and you have one of the best savings accounts or money market accounts available, you may still be feeling a little dissatisfied. With savings accounts paying 0.15 percent and 1-year CDs paying just over 1 percent, some may be wondering if there is a more lucrative place to put their retirement savings.

According to istockanalyst.com, the current average national rate for CDs is 0.86 percent, and although it poses no stock market risk, that kind of return poses what's called "purchasing power risk." What that means is that even with the best CD rates you can find, inflation is going up at 3.6 percent--meaning your money is in essence losing value while it sits in the certificate of deposit.

Your only option if you want to boost the balance in your savings accounts or checking account is to take on some level of risk. Here are three of the safest options:

  1. A money market fund. This is a type of mutual fund that invests in low-risk securities and which, according to the Securities and Exchange Commission, pay dividends that reflect short-term interest rates. These accounts are not federally insured.
  2. Municipal or corporate bonds, which are typically less risky than stocks. According to Investopedia, bond investors like the periodic payment structure of bonds rather than the possibility that they'll lose money if a stock goes down. Of course, by not investing in stocks, you lose the profits that come with a soaring stock market, so that's why most successful investors divide their investments in to both categories.
  3. One of the safest, but lowest-paying, bond options is U.S. Treasuries. Although there were questions about the U.S. government's ability to cover its own debt payments during the debt ceiling debate, many investors flocked to Treasuries to avoid fluctuations in the stock market, and demand for T-bills went up.

Some advisors, including Kiplinger's magazine, recommend that conservative investors spread their money around to different safe havens, from U.S. Treasury bonds to CDs and even an online savings account, which will pay a higher interest rate than a traditional bank.


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