A FEW years ago, investors expected double-digit percentage gains from investments. Now, their ambitions are far more modest - safety.
Del Karfonta, executive vice president of the Columbia Bank, said the bank this year has seen deposits increase 10 percent in savings accounts and 35 percent in certificates of deposit by customers taking a wait-and-see approach to the stock market. "It's starting to grow to the point that it's catching our attention," he said.
For these customers, Karfonta said, "It's not so much, 'I want a 10 percent return on my money.' It's, 'I don't want to lose any more.'"
Other banks are seeing the same. The Federal Reserve reports that savings accounts, CDs and money market account deposits totaled $4.5 trillion by mid-August, a 10 percent increase from a year earlier.
Financial experts note that for long-term goals, such as retirement, investors are best off with stocks, which traditionally have provided the highest returns. And they warn that many so-called "safe" investments, like savings accounts, pay such a low interest rate that consumers are at risk of inflation eroding their purchasing power.
Still, for those who for now are more interested in preserving their principal than in rates of return, here are some options:
Savings accounts: Savings accounts pay an average annual yield of .92 percent, according to Bankrate.com in North Palm Beach, Fla.
"On the other hand, it's not paying lower than the stock market," said Karen Christie, Bankrate.com's vice president of research.
For the best rates on savings accounts, Christie suggests consumers check local credit unions and small banks and thrifts. "Generally, what they will do is pay a higher rate because they can't offer you 12,000 ATM locations," she said.
Money market deposit accounts: "If you're not sure what's going to happen but want to be able to take advantage of any changes or moves in the stock market, then this is probably the best place to go," said Christie. "This is a liquid account."
Like savings accounts, money market accounts offered by banks are insured by the Federal Deposit Insurance Corp. The accounts generally require a minimum balance, which can vary widely from bank to bank. Consumers typically are limited to six transactions a month, three of which can be check-writing, Christie said.
Money market accounts last week paid an average annual yield of 1 percent, although consumers shopping around the country could find a yield as high as 2.75 percent. Check www.bankrate.com for the highest rates.
Often consumers can get a slightly better return from money market mutual funds, which last week paid an average yield of 1.24 percent, according to the Money Fund Report.
The funds are not FDIC-insured. But they are considered very safe and typically invest in CDs, Treasury bills and short-term debt of top-rated companies.
The funds also offer check-writing privileges, though the check amount usually must be at least $250 or $500.
Certificates of Deposit: If you're not going to need the money right away, consider a certificate of deposit. Bank CDs are also FDIC-insured.
Last week, 3-month CDs averaged an annual yield of 1.47 percent, 1-year CDs yielded 1.84 percent and 5-year CDs earned 3.75 percent, according to Bankrate.com.
Penalties for early withdrawal differ and can range from a loss of two to six months' worth of interest depending on the institution, Karfonta said. Before investing, people should ask about penalties, Karfonta said.
U.S. bonds and notes: The safest bonds are those backed by the U.S. government.
Savings bonds are an inexpensive option. Interest is paid when the bonds are redeemed, and consumers don't pay state or local income taxes on the earnings. Consumers can buy a Series EE bond for half its face value, or as little as $25, and a Series I starts at $50.
Interest rates are set for new bonds every six months.
The EE bond, whose rate is tied to five-year Treasury securities, now pays 3.96 percent.
The Series I, designed as a hedge against inflation, now earns 2.57 percent. The rate for the bond is based on a fixed rate, which was reduced in May to 2 percent, plus the rate of inflation. "The EE is the better buy of the two not because the rate is higher right now ... but the EE has averaged 2.6 percent above inflation over the past 12 years," said Dan Pederson, president of the Savings Bond Informer in Detroit. "The I bond only guarantees 2 percent above inflation."
Neither type can be sold within the first six months of purchase, and investors forfeit three months' worth of interest if the bonds are sold before five years.
Inflation isn't a problem now, and many people aren't worried about it. "But it is a long-term enemy to capital preservation," said Joel Ticknor, a financial planner in Reston, Va.
As a hedge against inflation, Ticknor likes Treasury Inflation-Protected Securities, or TIPS, which can be purchased directly from the government for a minimum of $1,000. TIPS pay a fixed-interest rate, and the principal is adjusted twice a year to keep up with inflation. Interest is paid out every six months. And when the 10-year note matures, investors will receive the return of their principal plus any additional money added to the principal because of inflation.
Because the income is subject to federal taxes, Ticknor suggests TIPS be held in a tax-deferred account.
Investors should be aware that if they sell TIPS before maturity, they may end up selling the notes at a discount or a premium depending on interest rates at the time.
Some mutual funds also invest in TIPS. Ticknor said the funds are a way for those with modest means to invest in TIPS, although investors should make sure they buy a fund with low management fees.
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