Safe savings

Question: We are a single income family with about 50% equity in our home. We have an emergency fund of 6 months of expenses sitting in a savings account earning 0.24% plus we also have the same again in a non-retirement index fund (at least that is what is left). I am looking for suggestions on how / where to invest my emergency fund to maximize the return while still being prepared for an emergency such as job loss. Kelvin, Smyrna, GA

Answer: It's dismaying how little all of us are earning on our safe savings. Problem is, it's an axiom of modern finance that you can only create the prospect for higher returns by taking greater risk.

The stock market is too risky and too volatile for safe money, not when equity prices move with dazzling speed, thanks to superfast computers and sophisticated algorithms.

You can pick up a higher yield by buying a mutual fund or exchange traded fund that invests in blue chip into corporate bonds. But there's still a greater risk in that kind of investment than in an online savings account, a certificate of deposit, and U.S. Treasury bills and notes.

My advice with safe money is to stick with investments backed by the federal government and (grudgingly) accept the lower yield. This is especially true when the concern is a potential job loss. The big priority in that case is that the money be there when you need it.

That said, it still pays to shop around. Some banks and credit unions are offering customers a better interest rate on their savings than others. People living in high tax states might do well investing their money in U.S. Treasuries rather than CDs of similar maturity. You don't pay state and local taxes on Treasuries (you do get a federal income tax bill, though).

About the author

Chris Farrell is the economics editor of Marketplace Money.

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