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Special section Save more, spend less in '07

As you build an emergency savings account, earn interest.

Great places to park your cash

Financial gurus say, "Invest for the long term." But those of us who have to pay the bills know that sometimes it's smarter to keep cash where you can get to it quickly, preferably in a risk-free investment.

In the last few years, it didn't much matter where you put that cash. Under the mattress seemed good enough when interest rates were less than 1 percent.

But interest rates have slowly climbed, as the Federal Reserve has methodically raised the target short-term interest rate that banks pay for overnight loans to cover reserves, driving up other rates that are linked to it. Now finding a good parking place for your cash is worthwhile.

Some people argue that small percentage differences in yield don't amount to enough return to make up for the effort involved in moving money. That might be true if you're Daddy Warbucks, but for most of us, more money is generally better than less. For instance, the difference in the interest rate that savings accounts pay can easily be more than 3 percent. Do the math. On $50,000, the difference in a year's worth of interest at 0.5 percent compared to 4 percent is a whopping $1,750.

These days it's not too difficult to find accounts with interest rates north of 4 percent. Below are some ideas for stashing your cash where it's safe, but where you can get to it easily -- and the return is nothing to sniff at.

Bank certificates of deposit, or CDs
Banks make their money by taking in deposits at relatively low rates and lending money out for the long term at higher rates. With loan rates going up, banks are eager to get access to your money, so some are offering very attractive savings rates.

When you purchase a CD, you invest a fixed amount of money for a fixed period of time -- one month, three months, six months, a year, five years, etc. In return, the issuing bank pays you interest at regular intervals. In these days of increasing interest rates, it's rarely smart to lock up your money for more than a year, especially since you can find 90-day CDs that pay almost as much as banks are offering for longer terms.

If you're interested in maximizing your CD return, Bankrate publishes a daily list of the highest-yielding CDs available nationally. The institutions that consistently provide the highest yields to consumers are recognized with Bankrate's Top Tier Award.

-- Updated: Dec. 29, 2006
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