Alice M. from San Antonio, Texas asks Forever Stocks:
Q: My CD is expiring. I'm only getting 0.29%, so I'm thinking about switching into a safe-but-non-FDIC-insured product to get a higher. What other options do I have that would be safe?
A: Thanks for your question, Alice. This question has become more and more common as people become impatient with next-to-nothing interest payments from their savings accounts and . According to Bankrate.com, the average 1-year CD a ho-hum 0.69% APY and the average 6-month CD a paltry 0.22% APY.
For short time horizons -- less than a year -- you can visit Bankrate.com. The site allows you to search for the highest yielding money accounts, savings accounts and offered in your area or nationwide. A search for 1-year shows banks rates up to 1.15% APY.
For an even shorter term -- weeks or months -- a money account may be a better choice. Money accounts allow you to freely withdraw your money at any time while still earning up to 0.91% APY.
Bank CD Alternative #2: Short-Term Funds
For readers with investment horizons shorter than three to five years, short-termwith low expense fees (look for annual fees under 0.6%) can also be a great alternative to a bank CD.
The T. Rowe Price Short Term PRWBX) is popular around the InvestingAnswers office. It invests in a mix of safe corporate (with an average AA , government , , and backed securities, among other sectors. The held within the fund have an average maturity of less than two years -- making PRWBX much safer than a long-term that would face a significant price decline if long-term interest rates start going up.(NYSE:
PRWBX has a minimum investment requirement of $2,500 but offers an attractive of 2.20% (minus the expense fee of 0.54%, which is below average). It has been expertly managed by Ted Wiese for the past 15 years.
Bonus: There's no withdrawal penalty, which makes it easy to access your money as soon as you need it.
Bank CD Alternative #3: I-
Another viable-- and one that's a bit outside the box -- is the I- . Issued and backed by the U.S. government, this type of is designed to keep pace with , so it adjusts its interest rate every six months as fluctuates.
Every dollar you invest in an I-is also tax-deferred (like an contribution), meaning you're only taxed on earned interest after you redeem it.
Currently, the I-pays 3.06% APY, but as always, there is a catch. You must hold the I- for at least one year, without exception. And if you redeem an I- within five years, you must forfeit your last three months of interest -- causing your actual to drop slightly to 2.7% in the year you incur the penalty.
You can purchase I-TreasuryDirect.gov up to $10,000 per person. The are then sent electronically into your designated account.free in $25 increments at
Bank CD Alternative #4: Ultra-Safe Stocks That Pay Big Dividends
Many investors -- especially the most risk-averse ones -- fear putting their money in stocks for the short term, quite understandably. But there are a few exceptions thata safe and reliable -- sometimes up to a whopping 5%.
In my recent article, Forget 1% , I outlined Automatic Data Processing (NASDAQ: -- This Alternative Pays Four Times MoreADP), which carries a AAA-credit rating and has a lower risk of default than the U.S. government. The stock currently pays a 2.87% , but that is very likely to grow to over 5% in the next few years, thanks to the company's annual tradition of raising its dividend.
[Note: My research team and I recently analyzed a safe stock that has raised its dividend 700% over the past 10 years. If this industry-leader keeps raising its dividend at that pace -- which it could easily afford to do -- itscould grow from its robust 4.60% to an eye-popping 18.9% for investors who buy the stock today. If you want to learn more about this "forever" stock and four others, I invite you to watch this presentation.]
The best feature of safe stocks that pay a dividend? Unlike a cash in your at any time., in which you have to lock up your money for a fixed period of time, stocks are , so you can
The Investing Answer: As usual, try to strike a balance between liquidity and interest in any investment you choose. Tying up your cash in a 5-year CD for 1.80% APY may not be worth it when you consider a much more 1-year has an interest rate nearly as high at the 5-year -- up to 1.15% APY.
If your time horizon is longer than three years, you may see interest rates rise before you need access to your money -- so stick to terms shorter than that if you want to have cash freed up to take advantage of safe investments with higher interest rates in the future.