For the Moderately Rich, An Obvious Strategy

Money market funds really stink, especially these days. As BestCashCow.com's rate charts show, the rates are not comparable with online savings rates in the current low rate environment. Even worse, these things are not secure. It has happened before where money markets have had their values fall below par, either through redemptions or through defaults in the portfolio. It could easily happen again in this environment.

The government, through the FDIC, provides a way to get better return and sleep better at night. It is, in fact, a no brainer.

As long as you stay below insurance limits, your CDs at FDIC-backed banks are entirely protected. You cannot get that kind of insurance in a money market account.

What I have done is to buy several 1-year CDs which I have pulled off of BestCashCow.com's rate tables. The rates are currently around 4.50% which is twice what I am earning in money market accounts, and again, it is fully insured. Since I am single, I keep my investments to $95,000 per account so that I am assured that even on maturity in one year, my balance will be less than my FDIC insured amount of $100,000. I am also careful that I do not have any other accounts with the banks where I open CDs.

An easier thing to do that provides the same protection as this strategy is to just buy brokered CDs through my broker, again being certain that no more than $95,000 goes into instuments with a single financial instutution. This strategy lets you sleep better at night, but you are never going to get these kind of yields through brokered CDs, listed with say Smith Barney or Merrill Lynch. I've purchased 2, 3 and 4 month CDs through my broker that yield the same as the money market accounts that I am in. It just isn't worth my while to fill out all of the paperwork to get a slight bump-up on a short-term rate, but it is worth my while to make the call to my broker and get the insurance that money markets don't provide in this environment.