Boring High Yields for Your Cash

I couldn't believe it, and from the U.S. government at that.

I BONDS

I bonds offer current annualized yields of 4.6%. Who would have thought that yields on government bonds beat those of junk bonds? The lack of decent yields for cash is pervasive. Many folks are taking on greater risk to increase their return. Junk and lower rated bonds are fine, as long as you understand the default risk. Companies in financial trouble are rated lower than more stable firms. That said, many lower rated firms will never default. If your cash is looking for a safe return greater than 1%, take a look at these investments. Here's the return you can get today on CD's, treasuries, corporate and high yield bonds. The US government inflation bonds beats them all.

Assets- Average 1 Year
rates-6-3-2011 CD 0.60% Treasury 0.31% Corporate bond-A rating 1.37% High yield bond 4.20% I Bonds 4.60% Source; CD, Treasury, and corporate rates provided by Charles Schwab. Hi yield bond returns provided by the Wall Street Journal. Are you interested yet? You have to put your cash somewhere, why not attempt to keep the return in line with inflation? If you think inflation is likely to be a factor in the future, this investment will help combat its damaging effects. Tear sheet on I bonds: • The I Bond return is composed of two parts, interest rate which is fixed at purchase and inflation adjustment which is set every May and November. • Current rate: Inflation portion 4.6% through October 31, 2011. Fixed interest rate is 0%. • Current rate: Inflation portion 4.6% through October 31, 2011. Fixed interest rate is 0%. • Minimum and maximum purchase: $25.00 through $5,000.00. • Where to purchase: On line through treasury direct (electronic) or any bank. • Redemption: After 12 months with three months interest penalty. No penalty after 5 years. • Maximum annual investment: $5,000.00. TIPS A comparable inflation protected investment TIPS (treasury inflation protected securities) can be purchased at auction or on the open market. The return on TIPS includes the principal which increases/ decreases with inflation/deflation. The fixed interest portion of the return is applied to the adjusted principal semi annually. Unlike I Bonds, there's no upper limit on purchase amount. Life span for TIPS is 5, 10, and 30 years. These investments are boring with no sex appeal. With current inflation certain to rise, protect your cash from its damaging effects with inflation protected securities. Barbara Friedberg, MBA, MS is editor-in-chief of Barbara Friedberg Personal Finance.com where she writes to educate, inspire, and motivate for wealth in money and life. Learn about personal finance from a real life Portfolio Manager & MBA professor! Stop by the website and download a valuable free eBook, 20 Minute Guide to Investing.

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