A Bit More For Savers
By Yuval Rosenberg

(FORTUNE Magazine) – Even as the Federal Reserve pushes short-term interest rates higher, long-term rates remain surprisingly low--to the delight of borrowers and the chagrin of income investors. Fed chairman Alan Greenspan has called it a conundrum, but for savers it means there's no point in locking up your money in long-term certificates of deposit. Yields on savings vehicles have climbed from the wretched levels of recent years, making ultrasafe money-market accounts and short-term CDs relatively attractive.

The average rate for a one-year CD is up from 1.1% in March 2004 to 2.75% today. Some banks pay around 4%. With low returns expected across all major asset classes, "all of a sudden getting paid 2.5% or 3% in your money-market account is not a bad investment," says Anton Pil, global head of fixed income at J.P. Morgan Private Bank. That means that if you have cash parked in a savings account, it's a good idea to check the rate you're getting--and shop around for better returns using sites like Bankrate.com.

Many banks also offer CDs with features meant to appeal to investors concerned about locking up cash while rates head higher. Some CDs have rates that move up, and others permit early withdrawals. But such variations often come at a price: lower rates and higher minimum deposits. So analyst Greg McBride of Bankrate.com generally suggests sticking to shorter-maturity CDs and reinvesting as rates climb. Investors in higher tax brackets should also consider tax-exempt money-market funds like those offered by Fidelity, Vanguard, Schwab, and others. The current yield champ is Alpine's Municipal money fund, with a 2.44% payout, equivalent to a taxable 3.75% for investors in the 35% federal bracket. And as rates continue to climb, every point counts. --Yuval Rosenberg