MONEY MANAGEMENT


Earn 4% on Your Savings

Still have cash parked in a money-market mutual fund? It's time to move it out. A year ago, when the stock market was in free fall and investors were seeking refuge, money funds were earning 2% or more. Now the yields, which track short-term Treasuries, are below 0.4%. Yet money funds still hold $3.5 trillion in assets, just about the same amount as they held a year ago, according to Money Fund Report newsletter. Prospects for higher rates are better at a bank, but even if you're willing to tie up your money for five years in a certificate of deposit, you'll be hard-pressed to find yields higher than 3.5%. And top one-year yields are only 2% or so.

Even as market forces undermine the earning power of your savings, don't let inertia add insult to injury. To find decent, supersafe yields now, you have to think outside the box. For example, you'll find some of the highest interest rates at community banks and credit unions. And your money is safe, as long as you know the limits of deposit insurance. If you're willing to step up the risk pyramid for a decent shot at higher returns, consider a short-term bond fund.

Safety plus high yields

You can earn as much as 5% on balances up to $25,000 (and sometimes more) at a community bank or credit union. For example, Union State Bank in Atchison, Kan., pays 5.01% on up to $25,000 in its My Rewards checking account. And you need a deposit of just $25 to open an account. (To find banks and credit unions with high-yielding accounts, visit CheckingFinder.com, and enter your zip code.)

Yes, there's a catch to high-yield accounts: They come with a laundry list of restrictions. All banks and credit unions that offer them have more or less the same requirements. You must receive monthly statements by e-mail, use online bill pay, set up one monthly direct deposit or automatic payment, and use your debit card for purchases from ten to 15 times a month. The interest rate drops to around 0.3% at most institutions in any month that you do not meet the account's requirements, but it reverts to the higher rate if you meet them the following month.

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Bobbi Bechtold of Godfrey, Ill., opened a free eSmart checking account at Liberty Bank, a small community bank in Alton, Ill. The minimum deposit to open the account was just $1, and she's earning 4.01% interest on balances up to $25,000 (for higher balances, the rate drops to 1.25%). Liberty Bank reimburses ATM fees from other banks up to $20 a month. To help meet the 15-times-a-month debit-card requirement, Bechtold's husband, Don, uses his card when he picks up his morning cup of coffee at McDonald's. Bechtold keeps the account balance as close to the $25,000 limit as possible by replenishing the funds from savings after she and Don use their debit cards.

Bechtold found Liberty Bank when she searched the Web for the best rates. She used to have accounts at megabanks, such as US Bank and Bank of America, but now she prefers doing business at a community bank "where you know everybody."

Credit unions are in stiff competition with banks for deposits. On average, they currently offer higher yields than banks on deposits and lower rates on loans and credit cards, according to a recent survey by Datatrac. When some of their CDs came due, John Eckley and his wife, Kathleen, each opened an Xtraordinary checking account at Connexus Credit Union in Wausau, Wis. "I could earn far more than on any other checking or money-market account," says John. Connexus accepts members from anywhere in the U.S. (you can join the Connexus Association for just $5). Or you could join Pentagon Federal Credit Union, even if you're not a member of the military, by paying a one-time, $20 membership fee to the National Military Family Association.

Bank money-market deposit accounts, which are also insured by the Federal Deposit Insurance Corp., are another option, but they yield 2% or less. You can open an MMDA at Flagstar Bank, in Michigan, with just $1 and pay no monthly fees. The account, which recently yielded 1.82% on balances up to $1 million, comes with a Visa debit card that you can use surcharge-free at more than 32,000 ATMs. By law, you can transfer funds or make withdrawals from a deposit account only six times a month, and only three of those transactions may be made with your debit card.

If you don't need to write checks, consider a savings account. For example, you can earn 2.3% on up to $100,000 in deposits at Tennessee Commerce Bank. Keep $250 in your account, and you avoid all monthly fees. You're entitled to one free ATM withdrawal a month; you pay $2.50 for each subsequent withdrawal.

Create a CD ladder

For sums above $25,000, certificates of deposit still offer the best combination of safety and yield. CD rates keep "slip-sliding away," says Greg McBride, of Bankrate.com. So shopping around is more important than ever. Yields from the top-paying banks range from 1.8% to 3.5%, depending on maturity.


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