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Making Your Money Last

Where Savers Can Find High Rates

Despite the Fed's recent interest-rate cuts, you can find a high-paying account -- if you know where to look.

The calendar may say July, but the climate for savers has definitely cooled down. Last summer, yields of 5% or more were plentiful. Now, rates of 3% to 3.5% are common.

But don't despair. Savings and checking accounts at online-only banks, such as HSBC Direct, ING Direct and Salem Five Direct, charge no fees and require no minimum deposits or balances.

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To qualify for the best rates, however, you may have to accept some restrictions or meet certain conditions. For example, the Woo Hoo checking account at Citizens Bank in Minnesota pays 6% on deposits up to $25,000 if you use your debit card at least ten times a month, make one direct deposit or automatic payment each month, and receive your statements electronically. Coastal Commerce Bank, Newport Fed and Dade County Federal Credit Unionoffer similar accounts. Make sure these requirements mesh with your banking style before you open an account; if you fail to meet the conditions, you could earn as little as 0.1%.

Bank money-market deposit accounts, which are insured by the FDIC, offer some of the best rates; the only catch is that you are usually limited to six withdrawals a month. For example, if you have at least $1,000 in an Indymac Bank E-Money Market account, you'll receive an annual yield of 4%. If that threshold is too high, Flagstar Bank has no minimum-balance requirement and is offering a rate of 3.7%. Twelve banks recently had money-market funds with yields of 3% or more, according to Bankrate).

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If you can afford to lock up a little cash (or a lot) for a set time, FDIC-insured certificates of deposit are another good option. Stash $5,000 or more for five years in a Capital One Bank CD and you'll earn 4.8%. At GMAC Bank, you can deposit as little as $500 and earn 4.4% interest. If you need the cash sooner, a one-year, $5,000 CD from Indymac Bank is earning 4.2%; a one-year CD from GMAC Bank is earning 4.1%, again with a $500 minimum. Even if you can spare the cash for only six months, you can earn 3.8% at Corus Bank ($10,000 minimum) or 3.7% at Nexity Bank($1,000 minimum).

Yields on money-market mutual funds have dropped dramatically; avoid them unless you need immediate access to your funds. Dreyfus BASIC, the highest-yielding fund, offers a rate of only 2%; the average money-market fund is yielding barely 1%.

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