“Counting your pennies” is a phrase that has become all too literal for savers with FDIC-insured accounts and CDs.
Yields are dismally low — usually less than 1 percent on most types of accounts — while inflation, as measured by the Consumer Price Index, increased by 1.7 percent in 2012. The result is a loss of purchasing power on savings.
So what are your options if you’re looking for a little extra yield?
Investigate high-yield reward checking accounts, which can offer significantly higher rates than traditionalchecking accounts. The catch is that most banks impose transaction requirements to qualify, and the high-yield rate applies to a maximum amount. Check out www.depositaccounts.com
to research banks in our area that offer these products.
Be on the lookout for CD promotions. Whether it’s for local stimulus or to reward loyalty, financial institutions may run CD promotions based on their own cash needs. A current list of the best local bank and credit union CD rates can be found atwww.nerdwallet.com
Good old-fashioned Series I U.S. savings bonds are currently yielding 1.76 percent. These bonds combine a fixed rate with an inflation-based rate that adjusts semiannually. There is no risk of principal loss, only interest loss, if the bonds are redeemed before the five-year maturity. Find more information at www.treasurydirect.gov.
Still not satisfied? Consider swapping low-yielding accounts for a conservative short-term bond fund.
But keep in mind these caveats: Short-term bonds are not FDIC-insured and could lose principal if interest rates increase. However, their yields rival five-year CDs, and unlike CDs they aren’t subject to early-withdrawal penalties. The T. Rowe Price Short-Term Bond Fund and Vanguard Short-Term Investment-Grade Bond Fund are two to consider, or research more funds at www.morningstar.com.
Most importantly, if it is too good to be true, then it probably is, so don’t let your thirst for bigger yields lead you into a precarious investment.