 Safely stashing short-term cash
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 Dear
Dr. Don,
I have $15,000 available for a short-term investment. Where do you
think I should invest? Would you consider the CDs?
-- Linda Lockup
 Dear
Linda,
It depends on how you define short term. If you're looking at parking
the money in a bank account for less than one year,
you have a host
of options other than a certificate of deposit, or CD.
Money market accounts, or MMAs, and money market mutual funds, or
MMMFs, with check writing provisions, have some liquidity that a
CD will not, although you'll give up some yield to gain that liquidity.
You can easily compare the APYs and bond equivalent
yields. The seven-day effective yield on the money market mutual
fund isn't as easily compared because it shows an annual yield based
on how the fund is currently invested and will change with the fund's
investments.
The following table gives you an idea where rates are.
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Short-term rates: |
|
| MMA |
5.26% |
APY |
$789.00 |
| MMMF |
5.19% |
7-day
effective yield |
$778.50 |
3-month
T-bill
|
4.93% |
Bond
equivalent yield |
$739.50 |
| 3-month CD |
5.37% |
APY |
$805.50 |
6-month
T-bill |
5.06% |
Bond
equivalent yield |
$759.00 |
| 6-month CD |
5.50% |
APY |
$825.00 |
| One-year CD |
5.60% |
APY |
$840.00 |
Lock in a rate with a CD and you don't have to worry
about rates going lower, but you'll have to pay an early withdrawal
penalty if you need the money before the CD matures. Put the money
in a money market account or money market mutual fund and the interest
rates will fluctuate with market conditions.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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