Interest rates are going to remain low for a while yet. The Federal Reserve recently made that clear. You’ll continue to earn historically low yields from traditional safe cash investments such as money market funds, treasury bills and the like. While cash can be a good place to protect money during a crisis, many people can’t afford to earn these low yields on savings for many years.
Fortunately, there are ways you can earn higher yields on money without taking the risks of high-yield bonds, dividend-paying stocks and other income vehicles some people have been scrambling toward. Consider these alternatives.
Short-term bonds. There are a lot of short-term bond funds. A standout to consider is U.S. Global Investors NearTerm Tax-Free Fund (NEARX), a no-load fund that seeks to generate tax-free monthly income and preserve capital. It invests in high-quality, short-term bonds issued by state and local governments in the United States. It maintains a weighted-average maturity of five years or less.
Fund management looks for relative values and pricing anomalies in the tax-free market. It also follows an investment model that it uses to dial the maturity of the portfolio up and down a bit. The model shows whether investors are too short-term bearish or bullish. Those tweaks in the maturity can boost returns and yields with low risk.
It’s done a good job at these tasks, because the fund is one of only a few that’s had positive total returns each year for more than 20 years. Over the last year, despite all the interest rate fluctuations, the net asset value of the fund has ranged from $2.23 to $2.27. The recent yield was 1.47%. Remember, that’s a tax-free yield, so on an after-tax basis it compares very favorably to other safe investments. (800-US FUNDS; www.usfunds.com).
Online banking. If you don’t mind doing all your banking online and not having a physical bank to visit, you can find higher yields. The leader in highyield, no-fee online banking used to be ING Direct. But ING left the U.S. market, selling the banking operation to Capital One. Capital One has maintained many of the popular features of ING Direct and even added more. But the yield merely is competitive instead of among the highest. You can receive, however, a bonus of $500 by depositing at least $50,000 and keeping it in the bank for more than 90 days. Lower bonuses are available for lower deposits.
EverBank currently offers a 1.11% introductory yield on its money market account, and the rate is good for six months. UFB Direct offers a 1.20% rate on its savings account with a minimum deposit of $25,000. That’s not an introductory rate. Other top rates are paid from Synchrony Bank and Ally Bank.
You can find the latest rates at bankrate. com along with details and links to the banks.
It is hard to recommend certificates of deposit at this point. You earn a bit more by tying up your money for one year or longer, but I don’t see much of an advantage with bank CDs. For example, at Synchrony Bank, the savings account yield is 1.05%, while the yield on a one-year CD is 1.20%. For a five-year CD, the highest rates nationally are only 2%.