Where to Stash Your Cash: With Interest Rates at Record Lows, Consider These Safe, Higher-Yielding Options

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WHEN JERRY GLASSBERG of Shelter Island, New York, decided in the early 1980s to retire from his job in sales, interest rates on savings accounts were running 6 or 7 percent. A short-term bank CD, federally insured, might bring in 9 percent. He figured he'd socked away enough money to ride out his retirement with no problem. For most of the years since, interest rates have had their ups and downs, but Glassberg was easily able to weather the changes-the flush years always seemed to balance out the lean ones. It wasn't until 2008 that rates started to really dive. And boy did they dive! Most money market and savings accounts today are paying considerably less than 1 percent. While that's great news if you want to refinance your home, it's rather unpleasant news if you are trying to live off your savings.

What's an investor to do? After recent stock swings so wrenching they would have made a cautious man out of Evel Kneival, everyone wants their money safe. Still, you need to look for alternatives to banks and CDs or your savings won't hold up. Glassberg decided he needed to do something-anything--to get away from rock bottom interest rates, so he put a small portion of his savings into the stock market and long-term bonds. "I dabble a little to get higher rates, but I hate the risk," he confesses. While there are no easy answers, you can find ways to increase your yield while keeping your risk extremely low. Starting with the safest, consider these options:

Change Your Bank

While the typical checking or savings account is paying almost nothing--and bank CDs only a wee bit more while tying up your money for long periods of time-you can find much better rates online. Reputable online banks include ingdirect.com and ally.com. At the time of this writing, ally.com was paying 1.24 percent, compared to Bank of America's current offer of .05 percent. (Yes, you read that correctly, one-twentieth of a percent!) To comparison shop, go to bankrate.com and moneyaisle.com. Make sure that any bank you choose is FDIC-insured--a complete listing of government-insured banks is at fdic.gov. Limit your deposit in each bank to the current per-person guarantee limit of $250,000.

Use Your Credit Union

Another super-safe way to get a small interest boost is to turn to these not-for-profit investment organizations. The catch, of course, is that you have to belong to one. A quick search online showed best credit union rates running from .8 percent to just over 1 percent. The National Credit Union Administration (ncua.gov) operates much like an FDIC for credit unions, insuring deposits up to $250,000 per person.

Take a Small Leap

If you're willing to move one step up the risk ladder, you might consider short-term, high-quality bond funds, says Christine Benz, director of personal finance for Morningstar, a leading provider of investment research. At the time of this writing, two reputable funds of this type, the Vanguard Short-Term Bond Index fund (VBISX) and the T. Rowe Price Short-Term Bond fund (PRWBX) had yields of 2.19 percent and 2. …