People who need their savings for living expenses or a specific purpose like a child's college tuition shouldn't take on more risk to increase their yield, says Jim Wright, president of Harvest Financial Partners, an investment management firm in Paoli, Pa. Even though rates are low, short-term savers are well advised to stick with CDs or savings bonds that will mature when they'll need the money.
"When yields are unattractive, the return of your principal is more important than the return on your principal. A money market fund yielding 20 basis points doesn't look that exciting, but when you put in $10,000, you know you'll get $10,001 back," he says. "Returns on short-term bonds still aren't great, but you'll pick up more than a money market fund or by rolling over three-month CDs."
It's OK to shop around for higher yields on bank accounts and CDs, but rate-shopping alone isn't an effective way to get a significantly higher return, says Nager.
"It's always better to get a quarter more than a quarter less," he says. "But rates are so low that it's still not enough money, not enough cash flow, for people to accomplish their objectives."