I'm certainly not advocating a run for cash. If that is your thinking, read my previous couple of articles. But, I do advocate everyone having an emergency fund, and for us retirees, the fund needs to be considerably bigger to avoid the necessity of selling low to raise living expenses. And, while the recent market action has made the cash feel a lot more comfortable than before, the Fed's response has made it much more difficult to find a decent profit on the cash part of our portfolio.
On the off chance that others are struggling with this issue, I'm documenting what I'm doing and looking for suggestions from those who may have found a better solution.
Over the past couple of years, I've been relatively happy with CDs and money market funds that paid 5-6%, or 2-3% over inflation. Suddenly though, I'm faced with money market funds, and renewing CDs at a 2% lower rate.
Three to four years ago, when interest rates were also very low, I bought I-Savings Bonds. These generally guarantee 1-2% over inflation, and driven largely by energy inflation the 5-6% yield looked relatively attractive. The inflation guarantee and the tax deferral feature also suited my needs. I still hold those bonds, although over the past several months the 4.5-5% yield made me question the decision. Now, that looks relatively attractive again. These are easy to set up and fund on-line with Treasury Direct, but be aware they do have some holding limits and penalties for premature withdrawal. Annual purchases are also limited.
Outside of that, the best thing I've found is the Washington Mutual Savings for Success program. It guarantees 6.5% for accounts which are funded by regular withdrawals from your checking account and held for a year. It is essentially an inclining balance, 1 year CD. Unfortunately the structure of the program makes it difficult to invest significant sums and I'm sure they'll try to hang on to the deposits at a lower rate after the one year guarantee. Even so, it seems worthwhile for those who keep close tabs on how hard their money is working and are looking to place even modest amounts.
Another option I've been moving toward, although certainly not cash accounts, is high dividend blue chips. It is relatively easy these days to get 4-5% dividends on solid stocks like Dow or GE that also have some growth potential.
Once you get beyond these relatively modest proposals, ideas get pretty uninspiring. Stick with the money market and hope rates head upward soon? Invest in CDs, with the anticipation that even today's low rates may look good tomorrow? Maybe the best chance to do better is to look for short term, local, promotional deals, but read the fine print carefully.
Ok, here's the best part...where you, the reader, get to enlighten us with your research and ideas. Come on guys, here's your chance to publish. Just hit "comments" and let us know what you have.