Where to Stash Your Cash Now

Put your money to work in one of these safe, high-yielding accounts.

By Joan Goldwasser, Senior Reporter

Jeffrey R. Kosnett, Senior Editor

From Kiplinger's Personal Finance magazine, February 2009

You (and your savings) may have been bruised and bloodied by the stock market, but that's no reason to seek comfort by tucking your money under a mattress. Although Treasury bills are paying next to nothing, banks and brokerage firms are still offering safe alternatives that pay you as much as 5%, are insured by the Federal Deposit Insurance Corp. and are backed by the full faith and credit of Uncle Sam.

Banks are particularly eager to cut you a deal. "They need deposits to boost capital and to have funds available to lend when markets loosen up," says Tom Brogan, director of retail banking practices at TowerGroup, a consulting firm.

You'll generally find the best terms at online banks, many of which are offshoots of traditional institutions. And take a good look at interest rates at community banks, which often offer incentives designed to retain current depositors as well as entice new ones. Your bank may have tiered rates -- the higher your balance, the more you earn -- which is a boon if you're moving a chunk of cash from the sale of stocks or mutual funds.

Certificates of Deposit
CD fans, rejoice. Not only are interest rates on the rise, but the feds have temporarily increased insurance protection on bank deposits.

The FDIC raised its ceiling on deposits from $100,000 to $250,000 per depositor per bank in October. (The ceiling reverts to $100,000 on January 1, 2010, so if you're thinking about depositing more than $100,000 in a CD that matures after December 31, 2009, consider dividing the money among two or more banks instead.) CD maturities range from six months to five years. Some have no minimum-deposit requirement, and others require as much as $10,000 (a higher minimum does not ensure a better rate).

Despite the many recent mergers, there are still thousands of banks, so you want to be comfortable as a customer. Aaron Fine, a partner at Oliver Wyman, a financial-services-strategy consulting firm, says you should find out how customer-friendly the bank's procedures are -- and, of course, make sure it is FDIC-insured. "If the Web site is cumbersome and it's difficult to make deposits, I wonder how hard it will be to take money out," says Fine. "If the process is fluid, trans-parent and easy to use, then I'm comfortable with it."

That said, the rate's the thing, and it pays to shop around. Yields on the highest-paying CDs range from 3.25% to 4.01%, depending on maturity, or almost two percentage points higher than the national average.

For savers with a short time horizon, Imperial Capital Bank, in California, is offering a six-month CD with a 3.25% yield when you deposit a minimum of $2,000.

Don't want to tie up that much cash? GMAC Bank, in Utah, will give you 3.15% on your money and requires only a $500 deposit. General Motors owns a minority interest in GMAC Financial Services, but your deposits are protected by FDIC insurance. You can earn 3.75% at GMAC on a one-year CD, and 4.9% on a five-year certificate. Flagstar Bank, in Michigan, is the top yielder for five years, with a 4.01% interest rate; a handful of banks offer 4% yields.

Parcel out your savings. Let's say you bailed out of the stock market and now you're sitting on a pile of cash that exceeds the FDIC's expanded limits. To be fully covered, you could divide your money among a number of banks, but it takes a lot of time and effort to research banks and open accounts.

As an alternative, you could place as much as $50 million (honest!) through the Certificate of Deposit Account Registry Service (CDARS) program, and all of it would be FDIC-insured. This is how it works: You deposit your cash in one of 2,700 participating banks. The bank then parcels out the money to other banks in $100,000 chunks. The FDIC has issued an opinion that CDARS is a deposit-placement service, which means that all the money in the program is eligible for insurance. The original bank sets the interest rate and takes care of the paperwork, so you receive one consolidated statement. If you're investing $1 million or more, you should be able to negotiate a slightly higher rate than the one that is advertised.

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