Boost your money market rate in a zero percent world

July 25, 2011

I grimaced when I looked at my money-market fund statement the other day. I was earning zero percent yield.

You’re probably in the same boat. With the cost of money at or near zero, after you subtract taxes, inflation and management fees, you’re looking at negative returns, although it doesn’t say that on your statement. You can do better.

Like most money funds, mine’s not insured by the federal government and strives to maintain a price of $1 a share. But nothing is guaranteed as our fearless leaders haggle over a federal debt ceiling increase and euro zone woes continue.

So it’s time to look around. For as long as I can remember, uninsured money-market mutual funds typically paid more than insured products. Not any longer. I found several FDIC-insured money market accounts that paid up to 1.15 percent annual yield. That’s nothing to shout about, but it’s a whole lot better than zero. Progress!

When I scanned my favorite savings search engine at, Sallie Mae — an online bank affiliate with the student lending company — was offering 1.15 percent (as of July 22). There were no monthly fees, FDIC insurance up to $250,000 and easy access to funds. Sallie’s nearest competitors were 0.10 percentage points lower.

As with all high rates, you have to be careful. They are typically only offered for a limited period and may change at any time. Unlike a certificate of deposit, a money-market account doesn’t lock in a rate for a given period. And watch out for hidden fees, which must be disclosed.

What if I didn’t need access to my money and wanted to lock it up for at least a year? The best yields I could find were from Sallie (1.2 percent annually) and Aurora Bank.

The insured accounts stand in stark contrast to the uninsured money fund world. I wandered over to the money fund website iMoneyNet and surveyed the dismal yields available.

The highest-yielding retail money fund on iMoneyNet was a paltry 0.06 percent (as of July 25). You’d do worse on an all-government securities fund: 0.04 percent.

All savings yields now are languishing in this low-yield environment. Institutions can only pay investors based on the short-term debt they buy on the open market. Money funds roughly track the federal funds rate, which was around 0.06 percent at last reading. This is what depository institutions charge each other for lending.

Since the Federal Reserve has been keeping interest rates artificially low — and will continue to do so for the near future — there won’t be any major rise in yields anytime soon. There are two wildcards, however. Inflation could come back (not likely in the short term) or some financial calamity such as the U.S. government not paying its debts could cause rates to soar.

So far, the Fed’s “quantitative easing” policy that keeps rates near zero has been suppressing yields, although it’s a bust for the general economy. Jobs keep evaporating, corporations are sitting on trillions of dollars and the housing market is still in shambles.

There’s one more thing you can do to improve your savings: Reduce the cost of your household debt. It’s still a great time to refinance your mortgage and reduce the monthly costs of credit.

The best deal is still to get a cash-back or other rewards card and pay off the balance in full every month. That way you pay nothing in finance charges. If you roll over your balance every month, you could pay from 11 percent to 16 percent annually on the balance — and even more if you’re late or your credit rating is poor.

If you carry a monthly balance, the math is compelling for credit-card payoffs. Let’s say you have a $10,000 balance at 15 percent annually and pay $500 a month. It will take you two years to pay it off. Raise the monthly payoff amount to $750 and you’re out of debt in 15 months.

Once you’re down to a zero balance, you can start saving the money you would’ve paid to the bank. Of course, if the government doesn’t raise its debt ceiling, you’ll see higher yields, but you may have to stay away from money market vehicles containing U.S. Treasuries. In that case, maybe Swiss Francs would be a safer bet if U.S. debt turns into Swiss cheese.


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Just around 30 years ago I could go to my local bank and get a savings account covered by the FDIC that would give me at least 3% interest with NO risk. They might even give me a toaster if I opened the account with just $100.00. Now, thirty years later (after we gutted Glass-Stiengal) we have to basically pay to have money. We can invest in risky financial instruments that no one understands (including the person trying to sell it too you) for a lousy 2-4%. And we wonder why America doesn’t save anymore? They can’t without a Bankster slowly stealing it from you. They took away the common persons saving ability. I can’t wait to see another financial collapse. This time the public will be looking for the Banksters with a different kind of bail-out in mind.

Posted by tmc | Report as abusive

[…] Boost your money market rate in a zero percent world […]

Posted by New home prices rise, consumers perk up » 99dzh | Report as abusive

Saving money is not investing it hoping to get a return. Or depositing it into an account expecting big interest for the “privilege” of having your money there. Saving money, in it’s truest form, is simply not spending it. You earn money by working for it, then save it by not spending it. Earning money, then wanting to get more money for doing nothing (investing/getting interest on deposits) I feel helped bring the economy to where it is. People stopped working for their money and started expecting their money to work for them. People become greedy at the idea of “free” money.

@tmc: if you think about it, is 3 cents on the dollar, anually mind you, really going to secure your finanial future? Stop complaining.

Posted by iflydaplanes | Report as abusive

I like reading the comments on news sites because you can get a broad range of opinions. I think I expressed an opinion above pretty well. I also think that post should do just that, express an opinion. Insulting other posters just narrows the viewpoints down to very thick skinned people.

Banks thru-out history have offered an interest rate on saving accounts because they use the money to lend to others (investing it) to make money. Didn’t you see “It’s a wonderful life”? The majority of us minions still believe this is how our banks and credit unions should still work. Many believe they still do. These are the people that P.T. Barnum was talking about. As I stated in the above post, it only took around thirty years for the banking industry to change that whole perception to “Stop complaining”. At this rate, in less than a decade they will be telling us how they really need 2% daily finance charge for the privilege of storing our money in their bank. I really don’t think that will actually come to pass because it sure seems inevitable that the banking industry will have another little collapse fairly soon and who knows what will come from the rubble. Us little people (My wife and I make 135,000 combined) are pretty fed up with banksters and politicians.

Posted by tmc | Report as abusive

Some years ago, visiting the CEO of a Seattle bank, I was amazed to see the great collection of world-class art hanging on the walls of his out-side office, where visitors sit. Then I realized all that art was bought with money made off the money saved and loaned by us ‘little people.’ I think it is true most large buildings in the great cities are owned by the banks and insurance companies, thus, again our money, their gain.

Posted by Pro7 | Report as abusive

I just lent my daughter and her attorney husband (both financially responsible) the money for their mortgage. My dad did the same thing with me. Both parties win. Screw the banks.

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