Getting the Best Interest Rate

June 9, 2009
Special Feature

Although yields on Treasury securities have been on the rise lately, money market funds that invest primarily in Treasuries are still paying paltry interest rates.

Although yields on Treasury securities have been on the rise lately, money market funds that invest primarily in Treasuries are still paying paltry interest rates. In some cases, fund expenses would have created losses, if money fund managers had not decided to waive certain fees. With money market yields in the cellar, if you’re looking to squeeze out a few more basis points of yield, you might want to look at the old-fashioned savings account.

Actually, the old-fashioned savings account, along with its cousin, the old-fashioned certificate of deposit, has gone high-tech. When searching for higher yields, Internet banks are the place to start, since many pay up to six times the interest rate that brick-and-mortar banks offer. In today’s low-rate environment, that may add up to just a tad more than 2%, but it’s still a lot better than 0.16%, which is the national average yield on money market funds, or 0.40%, the average interest rate on bank savings accounts. For a better deal, look to online banks like Ally Bank, Discover Bank, ING Direct, and CNBBankDirect.

Not only are online savings accounts paying higher interest, they are also more secure than money funds, since your deposit is protected by FDIC insurance up to $250,000 per account. Although money market funds rarely “break the buck,” falling below the value of a dollar a share, some have. Also, low yields expose you to the risk that inflation will eat up your gains - and then some. To compare savings account rates, go online to sites like BankRate.com.