Yes, there is investment yield out there. . . if you know where to look

  • By Todd Colucy
  • October 27, 2013
  • 417
                        
A few weeks ago, I was asked by someone if there was anyplace out there where a person could earn more than zero point something on their savings account without investing the money in stocks. My short answer was, “why yes, yes there is.” There are a number of great choices available to people willing to expand their savings and investing options. For those willing to jump through a banks required transactions hoops each month, a local checking account pays some nice interest. First Federal Community Bank has been promoting Kasasa Cash for some time now and for those who comply with their three requirements, the cash in the checking account earns 3.01% APY on balances up to $10,000. This is by far the best interest rate I’ve found anywhere with no minimum balance or time restrictions on the dollars in the account. First Fed isn’t the only local bank offering higher interest checking but, if using a debit card a minimum number of times is a hassle and or someone’s looking to park CD type dollars in a savings account, it’s better to look elsewhere as local bank savings accounts are paying less than 1% Unfortunately, this is also holding true for online banks. There was a time when online banks were paying significantly higher rates than local banks but those days are long gone. I did recently come across a 15-month CD from GE Capital Retail Bank that’s paying 1.15% on balances of $2,000 or more. Not bad but I’m not willing to lock up money for 15 months. An area that’s being ignored and even somewhat hated right now is the municipal bond market. Municipal bonds are IOU’s issued by state and local governments to fund capital expenditures. Investors in these bonds receive interest that’s free from federal taxes and in most cases free from state taxes as well. A newsletter that I’m familiar with currently has three municipal bond funds rated as a strong-buy and these funds are yielding 4.9% - 6.8% tax-free. Now that’s some meaningful interest. The main drawback with a bond fund is the potential loss of principal in a rising interest rate environment. That’s why my favorite way to earn a higher rate of return is by owning individual bonds. It’s really easy to buy them and if they are held to maturity, the only risk of losing the principal invested is if the company who issued the bonds can’t pay them back. The firm I’m working with has never had a recommended bond default. This firm seeks out U.S. dollar based bonds issued by foreign companies. I was so impressed with the firm’s track record, the interest rates on the bonds and their low 0.5% management fee; I rolled over one of my ROTH IRA’s to them. I’ll own two individual bonds that mature in less than four years and my yield-to-maturity on bond number one is 15.4% maturing in March of 2016 and bond number two the yield-to-maturity is 9.4% maturing in April of 2016. Bonds pay interest twice a year and when held to maturity, I’ll be paid the par value of the bond. For the techies in the bunch, what I pay initially for the bonds and the par value of the bonds have a direct impact on the yield-to-maturity. So I’m sure when that person asked me if there was any place they could earn more on their savings, I provided many more options than they thought possible. Being willing to dig a little deeper and take on some risk will make a significant difference in the interest one can earn. One final thought, if FDIC insurance is a big concern, then there’s another conversation that needs to be had.


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