I'm feeling saved, my friends, and I haven't just come from the church revival tent. No, I'm feeling saved because Alan Greenspan, my good pal who doesn't even know I exist, has finally heard my prayer. You know the one:
Our Alan, who art in the Federal Reserve,
Hallowed be thy congressional briefing,
Thy transcript come, Thy will be done,
On Earth as it is on Wall Street,
And give us this day, our quarter-point increase,
And deliver us from 0% money market returns,
For thine is the kingdom, the power,
and the deliverer of superior retirement income,
Ah, the lowly saver. You may remember him. Then again, you may not, since he belongs to a dying breed. But wait, dying does not mean dead. The saver lives, and thanks to trusty Mr. Greenspan, that saver is no longer in need of a defibrillator. Indeed, that saver is going to Disney World, because he is back in the interest-rate promised land. Bless you, Alan.
OK, I'm sure you're thinking I've stuck a fork in a wall socket and felt the energy, but trust me when I tell you this is just pure excitement on my part. You see, I opened my online bank statements the other day and discovered that my "interest earned this month" didn't have a decimal point in front of it! I was shocked but grateful.
The lowly saver returns
Frankly, times have been tough for the poor saver, also known as the lender. You see, if you're a saver who stuffs money in savings accounts, CDs, bonds, bond funds, or pretty much any other fixed-income investment, you're also a lender. Thus, savers basically lend money to those who need money, and they like to get paid for doing so.
I like to be a saver. The trouble is, as I'm sure my fellow savers are painfully aware, we've been living in a time that's only been good for our archrival, the borrower. That's right, cheap interest rates abound, and though bad for the saver, the borrower has been seeing some high times.
While Mr. Borrower -- sitting on a wallet that's filled with more plastic than LEGOLAND -- drives home in his new SUV that's towing his new boat that's towing a pair of Jet Skis that's towing a new home-entertainment system, Mr. Lender is sitting there earning 0.20% on his money market account. Sometimes life just isn't fair.
But wait, my friends, life is taking a turn in favor of all you savers out there, and from the look of things, pretty soon you're going to be sitting on your front porch earning 5% on that very same money market account -- and possibly watching Mr. Repo Man drive by in his slightly used SUV towing his new boat, towing his pair of Jet Skis, towing... Well, you get the idea.
I mean, really, do you know what my savings account over at INGDirect is pumping out these days? Try a big fat 3%. Three percent from a savings account! Just months ago I was pulling down 0.15% from my TD Waterhouse (NYSE: TD ) money market account. My yields are all grown up. (I'm so proud.)
The choices cometh
It does indeed seem that the Fed has finally put a little interest back in interest rates. After about a year's worth of interest-rate hikes, short-term yields are looking pretty good. Long-term rates, on the other hand, are still largely in the stinkpot these days, so there's really little incentive to tie up your cash in anything longer than an intermediate-term investment. (Note that I'm only talking about your cash savings here, not longer-term money that should probably be invested in stocks.)
So, how is a saver to decide what to do with all of these newfound savings options? Well, here are a few places to consider stashing some cash. The short-term and ultra-short bond funds are longtime favorites given their ability to produce slightly higher yields for those willing to take slightly higher risks. Unlike savings accounts and money market funds, there is a risk of principal loss with these funds, but fluctuations tend to be very small over time (often just a few cents per share).
Vanguard Short-Term Bond (FUND: VBISX ) is the obvious choice in the short-term category. It has a minimal expense ratio of 0.20% and an average duration of 2.5 years. The current yield is a touch over 3.1%, and the minimum initial investment is a reasonable $3,000 for regular accounts and $1,000 for IRAs.
Among the ultra-shorts, my favorite offering has always been the SSgA Yield Plus (FUND: SSYPX ) , whose long-term track record boasts solid returns with minimal risk. Its average duration is approximately one year. It has an expense ratio of 0.53% (well below the average reported by Morningstar), and the no-load fund invests nearly three-quarters of its assets in AAA-rated securities. It currently yields just over 1.8%, and there is a minimum initial investment of $1,000 for regular accounts and $250 for IRAs.
Again, however, my INGDirect savings account is currently yielding 3% with no fees or minimums, and can be linked to most other checking or savings accounts, so it's also a tough competitor in this category. Still, if you'd rather not have your funds scattered across several accounts, or if that's simply not feasible -- as in the case of your IRA -- the options above are solid long-term solutions.
If you're a slightly bigger fish and you're willing to step up to a slightly longer investment horizon -- say, a minimum three years -- you could do well with Fidelity Spartan Intermediate Municipal Income (FUND: FLTMX ) . Its unwieldy name aside, this fund is a smoking choice among intermediate-term municipals. It maintains a diversified portfolio and takes on minimal credit risk. Though the fund has a higher 5.5-year duration, this boosts its current annual yield to 3.85%. Even better, that results in a tax-equivalent yield of 5.4% for those in the 28% tax bracket and 5.9% for those in the 35% bracket. Again, however, the fund's $10,000 minimum and the fact that subsequent investments must be at least $500 keep this one in the pond where the bigger fish swim.
I hope a few of these options lead us not into temptation but deliver us from mediocre rates of return on our cash!
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Mathew Emmert would like everyone to know that no boats or Jet Skis were harmed during the writing of this article. He's the chief analyst ofMotley Fool Income Investor. The Fool issavers writing for savers.