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Money markets and alternatives

Posted by Jill Boynton  February 22, 2010 10:32 AM

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Money market rates are at their lowest levels in over 20 years, and have been for a while. Are there any alternatives that can get you a higher interest rate while still giving you the security of cash?

There are a few options when it comes to parking cash. Money market accounts are probably the most popular because they give you the liquidity of cash – you can get your money back at any time – and an interest rate that is usually better than a checking or savings account. But the rates can really vary. I went on line and found rates ranging from 0.10 percent (one-tenth of one percent) to 1.5 percent. Shopping around can make a difference. If you're comfortable banking over the web, on line banks such as ING Direct or HSBC Bank offer competitive money market rates.

CDs are another option. Their rates, however, are very similar to money markets. quotes average 6-month CDs at 0.98 percent and 12-month CDs at 1.44 percent. These are not terribly different from money market rates, and you have withdrawal penalties.

Short-term bond mutual funds are another option for cash. For instance the Vanguard Short-Term Bond Index Fund invests in good quality bonds with maturities of less than 3 years. It has averaged a 5.30 percent return over the past year. But bond mutual funds come with the risk of loss. The Vanguard fund has a low risk of loss and low expenses, but never the less more risk than cash or CDs.

Right now I have not found any alternative to cash that pays a decent rate without a risk of loss. After all, in these uncertain economic times it's the promise of safety that is driving down rates. But if you're willing to assume a little risk, a short-term bond fund might fit the bill.

This blog is not written or edited by or the Boston Globe.
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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of, a credit card and gift card marketplace, and, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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