Money Funds a Good Bet

If you want to boost your yield without a lot of risk, money-market funds make a lot of sense now.

I am considering putting some extra cash in a money-market fund, a short-term bond fund, a high-yield fund or a medium-term bond fund. But I'm concerned about loss of capital if interest rates rise. At the same time, I wonder how long I can expect money funds to yield 5% or so, when they have paid much less in the past. What should I do?

Yes, money funds have paid less in the past. Rates fell below 1% earlier this decade. But they've also paid more, and sometimes a lot more. In 1981, the typical money fund returned around 17%.

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.