My Personal Finance Journey

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Where to Park Your Cash in 2008

Contributed by mm | December 31, 2007 3:32 AM PST

6345-cash.jpgEvery time Fed lowers the interest rate, there will be a quick round of rate adjustment by all online banks. Now that the Fed rate is standing at 4.25% after four rounds of quarter-point cuts, those golden days of 5%+ interest rate on savings accounts are over. So, how should find good places to park one's cash? Here is a list of recommendations:

Online Money Market/Savings Accounts:

By and large, online savings accounts and money market accounts still offer some of the highest interest rates, and the utmost liquidity and security (all are FDIC insured). Some currently available offers:

: 4.90% APY ($10,000+)
Capital One Savings Account: 4.40% APY (no minimal)
ING DIRECT: 4.10% APY ($1 minimal)

Money Market Mutual Funds

Personally, I also regularly park a good amount of cash with money market mutual funds offered in my brokerage accounts. There are more than a few mutual funds that offers yields comparable to those of online savings accounts. For example, some from Fidelity:

Fidelity Cash Reserves (FDRXX) - 7-day effective yield = 4.86% ($2,500 minimal)
Fidelity Money Market Fund (SPRXX) - 7-day effective yield = 4.88% ($25,000 minimal)

(It is probably not a good time to invest in municipal money market funds for tax-free income. Currently, those funds are yielding about 3%, so unless you are taxed for 38% or more, it is not worth it.)

Such money market mutual funds are very liquid too, although there may be a delay of one or two days between when you sell the fund and when you can have access to the money.

Certificate of Deposits (CD)

Certificate of Deposits are also FDIC-insured ultra-safe investment vehicle for cash. Although you sacrifice some liquidity -- your money will be locked for 6-months or more and early withdrawal is subject to penalty -- you will get better yields like:

Countrywide Bank: 5.50% on 6-month CD ($10,000 minimal)
Bank of Internet: 4.76% APY on 1-year CD ($1,000 minimal)

High-Yield Stocks

Finally, if you want to take more risk, a few blue-chip stocks are currently yielding more than 5%:

Citizens Communications (CZN) - 7.8% yield
Citigroup (C) - 7.4% yield
Fifth Third Bancorp (FITB) - 7.0% yield
Bank of America (BAC) - 6.2% yield
Pfizer (PFE) - 5.6% yield
Reynolds American (RAI) - 5.1% yield

Of course, unlike all the above options, you may lose your principal in investing in equity, so only try it if you are willing to take the risk.

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This Post Has Received 3 Comments. Share Your Opinions Too.


SingleGuyMoney Commented on December 31, 2007

I'd like to recommend E-Trade Complete Savings. They are at 5.05% and offer quick, one-click, transfers to and from your local checking account.


Deborah Commented on January 4, 2008

And with E-Trade the fact that their equity obligations to losses looks insolvent right now should not discourage you.

Why take a chance putting your money in an institution fighting for its financial life?


Dave Commented on January 6, 2008

Go with the Countrywide SavingsLink account which currently pays 5.25% for $10K+.



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