Americans are saving more. Too bad that popular money market mutual funds, which hold $2.8 trillion in assets, are barely earning any return. Money market funds are essentially short-term cash investments, but unlike money market deposit accounts, they are not FDIC insured. If you want to preserve your principal, consider three alternatives that can offer potentially higher yields.
Regular Savings Account
You can move your money instantly to where it can earn more—and it’s FDIC insured. But interest rates, while better than what you may see in money market funds, are still low.
Certificate of Deposit
Consider bank CDs with maturity dates starting from a year to fifteen months. Bank CDs are FDIC insured and can mature in one month to five years, with a longer maturity
garnering a higher rate of return. But keep the maturity short in case rates rise.
Guaranteed Savings Annuity
Consider a savings, or deferred, annuity if you have money market funds held in retirement accounts. Interest rates on a fixed deferred annuity purchased in a retirement account can be fixed or floating. Annuities are a long-term insurance contract intended for retirement, but if you’ve already committed the money to retirement, a fixed annuity could provide an alternative to a money market fund.
An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.
Investments/Insurance: Not FDIC insured. Not bank issued, guaranteed, or underwritten. May lose value.
Investment and insurance products are not deposits, not insured by FDIC or any government agency, not guaranteed by the Bank. Investments and certain insurance products may lose value. The fixed annuity guarantee against principal loss depends on the claims-paying ability of the insurance company. There are costs associated with annuities, including surrender fees, early withdrawal penalties, and mortality risk expenses. Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan.
See How You Stack Up
Want a useful way to check the success of your investing strategy? Compare your stock portfolio’s performance against an objective benchmark. Whether it’s information from mutual fund research leaders like Lipper or Morningstar, or a stock index like the S&P 500, comparing your portfolio to an appropriate benchmark can help you see what’s working and what needs help. For bonds, consider the Barclays Capital Aggregate Bond Index.
