Best Places to Stash Your Cash

NEW YORK (MainStreet) — You could hardly be blamed for squirreling money under a mattress these days – that sometimes seems to be as good a place as any for your emergency fund or cash reserves.

While the stock market has delivered solid returns over the past few years, at the same time the options have dwindled for parking some cash with the hopes of drawing a return that at least keeps pace with cost-of-living increases.

Most bank savings and checking accounts are paying a paltry interest rate, and money market funds aren't much better. As far as CDs, it's been years – 13 years to be precise – since you could grab a 5-year CD that returned as much as 7% if held to maturity.

So what's a saver to do? If you don't have the stomach to go all-in with stocks, or simply want to make the most of your cash reserves, there are some options worth considering that just might beat the mattress stash.

Online savings or money market accounts: If you need to keep your money liquid, you can usually do a bit better than your local bank or credit union by shopping online banks. The best nationally available online rates for savings and money markets accounts are close to 1.20% APY, significantly above the┬┐general average of 0.13%.

High-yield checking accounts: It takes a bit of shopping, but currently there are some high-yield checking accounts that offer a decent return on at least a portion of your money – often the first $10,000 to $30,000.

One option to consider – a Kasasa checking account, which recently offered interest rates as high as 4% on a portion of your money. A review of the Kasasa Web site found current rates being offered range between a solid 2% and 3%.

Kasasa works with credit unions and lending institutions to acquire customers that they believe will be profitable over the long haul. That means you have to perform some relatively simple activities each month, such as using your debit card ten times, to lock in the high interest rate. If you don't meet the requirements, the checking account is still free and interest rates track with national averages.

U.S. Treasury Series I Bonds: While not nearly as liquid as savings or money market accounts, U.S. Treasury Series I bonds do "provide a decent alternative for keeping money safe and also having it earn a return that keeps pace with inflation," says Sol Nasisi, president of BestCashCow.com. Treasury Series I bonds are inflation-indexed savings that can only be sold without penalty after five years. A penalty of three months' interest is assessed if they are sold before five years. The bonds currently pay 1.18% based on a fixed rate of 0% and an inflation variable rate of 1.18%, which adjusts every six months. "These bonds are secure, protected by the full faith of the U.S. government," Nasisi says.

Short-term high quality bonds: If you don't need quick access to your money but are looking for a conservative alternative to stocks, short-term high quality corporate bonds may be an option. "The way for the average investor can access the bonds through an exchange-traded fund (ETF),'' says Mark S. Germain, founder and CEO of Beacon Wealth Management. "Buying individual bonds is really for trained professionals. For smaller investors, it's expensive and, in many cases, not worth the time."

One possibility of bonds offered through an ETF: CIU iShares currently yield 2.26 % for a duration of 4.22 years, and an average maturity of 4.82 years.

All of the options listed above will likely provide you with a better return on your cash than the checking or savings account at your local bank. Yet, Richard E. Reyes, a certified financial planner who operates The Financial Quarterback, warns against spending too much time evaluating potential returns on cash and emergency-fund money. Instead, he suggests parking your cash reserves wherever it is most convenient and accessible and then focusing on making smart choices around stock investments.

"Who cares about the yield on cash reserves or emergency funds?" Reyes says. "The money is there to solve one issue, so the fact that it is earning 0% or 3% should be of no consequence... There may be an immediate need for those dollars and you want to make sure that money is available when you need it the most."

--Written by Scott Westcott for MainStreet

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