Posted by: Aaron Pressman on August 16, 2006
With the Fed finally on hold after a zillion straight interest rate hikes, it’s a good time to review where you’re keeping your stash of cash. Bank savings rates at the biggest banks have remained pretty dreary with the exception of some online specials. But other cash investment options have gotten downright delicious, especially when viewed versus the stock market’s anemic performance this year.
CDs – Some advisers think the Fed's next move may be a rate cut down the road so they're advising locking in today's rates. One-year rates on federally insured certificates of deposit are well over 5%. In fact, a recent review by Bankrate.com found some banks locally offering rates at 6%. The highest nationally available rate on their list is Amtrust Direct’s 5.53% (annual percentage yield of 5.68%). The Cleveland bank’s online arm is also offering 5.15% money market rates.
Treasury bills – It’s easy and quick to buy Treasury bills directly from Uncle Sam's weekly auctions at the Treasurydirect web site. Annualized rates on 4-week bills were up to 5.17%, 5.11% on 13-week bills and 5.23% on 26-week bills at the most recent auctions. You can also set up your account to automatically roll over to newly issued bills when your holdings mature. Remember that interest on Treasury securities is exempt from state and local taxes.
Money market funds – These mutual funds, which by law aren’t supposed to lose principal, are averaging a yield of 4.70% according to iMoneynet. Tax-free funds are averaging 2.90%, which even for the highest federal tax bracket equals an taxable equivalent yield of only 4.46% (state funds and people who live in high tax states may have different results).