BOSTON ( TheStreet) --They say "cash is king," but it may take a while for it to reclaim the throne.Conventional wisdom has usually divided savings into buckets. There is a portion of your assets -- including 401(k)s and IRAs -- that is invested to reap returns. The opposite end of the spectrum prizes security for your nest egg.
|Choosing the best way to park your cash comes down to how available you want your money at all times, how important returns are and how much risk you can stomach.|
For many, checking accounts should really be considered more of a service than a savings plan. Interest paid, such as it is, can be quickly eaten up by the increasing encroachment of multiple fees. As for traditional savings accounts, FDIC backing means your money is safe, even in a worst-case scenario such as a bank failure. The meager interest accrued, however, can barely keep pace with inflation. Online bank accounts
As an alternative, high-yield bank accounts, many offered by online-only banks, offer better rates without sacrificing liquidity. They can do so because their purveyors have ratcheted up the competition with bricks-and-mortar branches and, lacking real estate overhead (and we assume all those chained pens would also add up) they can afford to be a tad more generous. Treasury and securities
The federal government also has a horse in the race. Treasury bills (with short-term maturity) and Treasury notes (with a longer commitment) are sold online by the government at TreasuryDirect.gov, as well as at most banks.
Money market accounts are another safe, FDIC-insured alternative, but often have restrictions on withdrawals and minimum balance. They differ from money market funds, often offered by brokerages, which invest in government securities, commercial paper (i.e. debt) and bank-issued CDs. While returns may be higher, they are pure investment plays and, just as is the case with a mutual fund, offer no FDIC safety net. Though touted as safe, there is risk, as was illustrated recently when there was a wave of funds "breaking the buck" and falling below a per-share value of $1. Structured products, such as CDs and money market accounts, are potentially good because they usually offer higher returns compared with other vehicles of their ilk. "The downside to them is that they are not liquid investments," McGervey says. "If you make a commitment to a structured note you are usually doing so for 18 months, two years, three years or even longer than that.." Bonds
More risky, given fears of cities and states going into default, are municipal bonds. They do offer tax advantages that can add value to their returns. An alternative was the federally subsidized Build America Bonds program, but it has already been defunded into oblivion by Congress. Corporate bonds are a private-sector varietal, but they carry more risk. In fact, the returns are usually proportionate to the company's credit rating (the worse it is, the better the payoff). -- Written by Joe Mont in Boston. >To contact the writer of this article, click here: Joe Mont. >To follow the writer on Twitter, go to http://twitter.com/josephmont. >To submit a news tip, send an email to: email@example.com.