Wes Moss: Is your cash even safe?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.


Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

There was this great clip of former Indianapolis Colts coach Jim Mora answering a question about whether his team might make the NFL post-season:

“Play-offs?” Mora screeches. “Don’t talk about play-offs! I just hope we can win another game!”

I think a lot of small investors can relate. “Return?” they might shout. “Don’t talk about return! I just hope my money stays safe!”

It’s impossible these days to get a decent yield on “safe money” — the funds we have stashed in highly liquid accounts for use in emergencies and other needs. (See my “Cash bucket” post for a full description.) Such investments have never paid a lot – after all, you are trading yield for security.

Back in 2007, you might have seen a 2 or 3 percent return on your safe money accounts. But today we are looking at a ZERO return on most money market funds, and less than 1 percent on most one-year bank CDs.

Why? Interest rates on other “risk-free” assets, including Treasury bills, are hovering near zero as well. A two-year Treasury note pays 0.2 percent. A five-year note, 0.9 percent. A 10-year Treasury pays about 2 percent. And that’s unlikely to change given the Federal Reserve’s recent pledge to keep interest rates exceptionally low until the middle of 2013.

With rates this low and the world economy in turmoil, the question is less about earning interest and more about making sure your money is safe.

FDIC coverage

True, you put your money in an account insured by the Federal Deposit Insurance Corp. But the FDIC’s rules have changed in recent years.

The FDIC insures your bank deposits up to $250,000 per named account, per financial institution. This $250,000 can be duplicated as you take advantage of different “ownership categories”. For example, you can have a single-name account, a joint account and an IRA in your name, all covered up to $250,000 a piece. (To check on your deposit coverage, here’s an FDIC calculator.)

If you are fortunate enough to have an extremely large sum that you want to place under FDIC coverage in your own name, without having to run to banks all over town in a Brinks truck, consider enrolling in the Certificate of Deposit Account Registry program. It provides a one-stop system to set-up and manage multiple FDIC-insured accounts totaling millions of dollars.

Money market mutual funds

There is a big difference between money markets at a bank and money market mutual funds. Bank money market funds are simply liquid investment accounts held at banks and covered by the FDIC up to the $250,000 limit. But money market mutual funds are essentially mutual funds that invest in extremely safe, short-term investments, such as Treasury bills, AAA-rated bonds and CDs. However, such funds are not insured by the FDIC.

If you find a money market mutual fund paying way above the industry average – say, 2 percent — it is probably taking on a higher level of risk than appropriate for a fund that is supposed to provide safety.

There is currently some concern about money market mutual funds that own European bank and sovereign debt — think bonds from France. If the EU debt crisis worsens, those funds could be in a world of hurt.

What current safe haven do you prefer for highly liquid accounts?

– By Wes Moss, for Atlanta Bargain Hunter

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7 comments Add your comment

Pee Wee

September 19th, 2011
9:03 am

Whew… It’s sure nice to be poor and not have to money about all this.


September 19th, 2011
9:14 am

I have had fine experience with lly[Eli Lilly], it appreciates and a nice dividend. What more is there? i have gone the whole route, in and out, penny stocks, oil,coal.nothing is better than a solid stock with a nice return.


September 19th, 2011
9:46 am

I have most of my money in a fixed and variable account….the MM account hasn’t done anything really but lose money (that’s very common right now with all that is going on) so I’m thinking about transfering it to the variable account. My best recommendation is to find a good financial advisor that you can trust to handle it for you. Chances are, they will know more then you and have lots of experience,

Getting worse

September 19th, 2011
10:11 am

Gold/silver. All paper money eventually returns to its intrinsic value.


September 19th, 2011
10:35 am

We have had a Treasury Direct Account for years. They are easy to set up and manage and access your funds if needed. It’s one of the safest places to put your money. If the US Treasury fails, all else is no good anyway.


September 19th, 2011
10:43 am

ING for a decent interest and somewhat safe (Who really knows?). SO for dividend and slow growth.


September 19th, 2011
11:32 am

We have our liquid in three different banks. All are in safe accounts like CD’s’, MM’s and regular checking/savings which is enough to pay bills up to about one year. As far as our retirement savings…crossing our fingers and praying because nothing is safe these days! Our house is worth nothing because all equity is lost, but at least we have no credit card debt, fair health, two decent running vehicles that are paid off and we’ll pay off the mortgage before 65, maybe 60 if we get a windfall. Just waiting out the storm for now.