If you have some short-term savings and you're not sure where to deploy it to get the biggest bang for your buck, you're in luck. Low interest rates over the past few years have been a big boon for homebuyers and mortgage refinancers, as well as other borrowers.
But they haven't been much fun for savers. Fortunately, though, rates are on the rise. Thanks to 17 consecutive interest rate hikes from our friends at the Federal Reserve, certificates of deposit are offering increasingly attractive rates.
You can seek out attractive CD rates at Bankrate.com. You can also click over to the websites of major financial companies such as Wells Fargo, Capital One (NYSE:COF), Washington Mutual (NYSE:WM), and Wachovia to see their current CD rates.
No, you don't have to secure your CD from your local bank. As a Gannett News Service article recently stated, to get the best rate on a one-year CD, " you're more likely to get it online from E*Trade (NYSE:ET), GMAC, or Countrywide Financial (NYSE:CFC) than from your neighborhood bank." The article continued: "Thanks to the Internet, consumers are no longer limited by geography when shopping for the best yields. For a growing number of . consumers, shopping around means they have easy access to numerous banks nationally, with yields on one-year CDs topping 5.5%.
If you find the best rate coming from a bank in, say, Rhode Island or North Dakota, that shouldn't preclude you from investing. Just make sure that if you do find a great rate online, the bank carries FDIC insurance.
Here are some recent national average CD rates, per Bankrate.com. I've included the corresponding number from November 2005, to give you a sense of how the numbers have risen.
| CD Duration | Current Rate | Rate 11/05 |
|---|---|---|
| 6 months | 4.46% | 3.36% |
| 1 year | 4.94% | 3.88% |
| 5 years | 4.92% | 4.33% |
These CD rates reveal something interesting: The one-year rate is higher than the five-year rate. If you expect rates to keep rising, consider forgoing the five-year CD in the hope or expectation that a year from now, you can lock in even higher rates.
The money market
Another option for short-term money is a money market account, which offers the benefit of your being able to withdraw your money easily without locking it up, as you would in a CD. (CD rates, however, are usually higher.)
Some recent money market rates have been close to 5%, with average rates hovering near 3.12%. The average is 3.47% for those with a minimum of $10,000. Bankrate.com recently noted the following seven-day money-market yields, net of the expense ratio, from some popular retail money market funds:
| Account | Yield |
|---|---|
| Schwab Value Advantage Money Fund | 4.86% |
| Vanguard Prime Money Market Fund | 4.83% |
| Fidelity Money Market Fund | 4.72% |
| Fidelity Cash Reserves | 4.68% |
Other options
When I tackled this topic last year, I heard from a reader named Mike, who noted the appeal of "very high-yielding savings accounts that are perfectly liquid, convenient, FDIC-insured, and . paying higher rates than many of the CD rates mentioned." A very good point. Last time I checked, Amboy Direct Bank in Old Bridge, N.J., offered a savings account that paid 4.95%, and HSBC's (NYSE:HBC) HSBCdirect.com offered one at 5.05%. Mike also mentioned ING Group's (NYSE:ING) offerings at IngDirect.com (its Orange Savings Account recently featured a 4.35% rate), as well as EmigrantDirect.com (a 5% savings account rate) and Presidential.com (5.12%).
Mike further pointed out that Costco (NASDAQ:COST) members can get special savings rates via a deal with Capital One. Sure enough, when I clicked over, I found 4.8% money market rates.
So don't just settle for peanuts at your local bank -- shop around a little.
Your long-term money
Of course, it's important not to get carried away and keep all your money in short-term vehicles. Over long periods, the stock market has generally been the best place to grow your nest egg.
If you're looking for some solid long-term investment ideas, take advantage of a free trial of any of our investing newsletters. Our Motley Fool Stock Advisor newsletter, for example, has been handily beating the market for more than four years now. A free trial gives you access to past issues and a chance to review every single recommendation -- including Costco -- and how well it's done. You've got nothing to lose by checking it out.
Bankrate is a former recommendation of Motley Fool Rule Breakers.
Selena Maranjian's favorite discussion boards include Book Club, Eclectic Library, Television Banter, and Card & Board Games. She owns shares of Costco. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.
