Wednesday, July 21, 2010

Safe Investments

[As updated July 11, 2011]

There are many reasons for wanting to keep money safe. You may be saving up a down payment for a house or car, bracing for next year's college tuition and board bills, putting together an emergency cash fund, seeking shelter from lunatic stock, real estate and other asset markets, or harboring plain old curmudgeonly mistrust of all the fast-talking salespeople ready to take your money. Even with all of today's uncertainties, there are a few safe places to put your money.

Bank Accounts. FDIC deposit insurance covers, at each member bank, $250,000 per customer (along with another $250,000 per co-owner for joint accounts and yet another $250,000 for retirement accounts like IRAs). All of your accounts of each type at that bank are combined when determining coverage. You don't have $250,000 of coverage per account. For example, if you have $240,000 in CDs in your name, $20,000 in your checking account, and $505,000 in a joint money market account with your spouse, $10,000 in your individual accounts is uninsured, and $5,000 in your joint account is uninsured. But $750,000 at that bank is insured. If you're approaching the FDIC limit at any one bank, move some money over to another bank to get additional deposit insurance coverage. For more information about FDIC insurance, go to There is a service called CDARS offered by certain banks which takes large deposits and splits them up among a number of participating banks such that your funds and the interest they earn are fully covered by FDIC insurance. For more information, go to

U.S. Treasury Securities. Direct obligations of the U.S. Treasury will be paid, even if the government has to print the money to pay you. So these investments are secure. You can buy traditional Treasury obligations, like 4 week, 3 and 6 months, and 52 week Treasury bills, 2, 3, 5, 7 and 10 year Treasury notes, and 30 year Treasury bonds. You can also buy TIPS, a type of Treasury security that offers inflation protection. There are good old U.S. Savings bonds, still alive and kicking, which come in traditional Series EE bonds, and also I-bonds offering inflation protection. One disadvantage of Savings Bonds is that you can buy only $10,000 of each type per year, $5,000 of which must be bought directly from a government service called Treasury Direct. So large amounts of savings can't be invested in Savings Bonds. For more information about buying directly from the government, go to U.S. Treasury securities can also be bought through brokerage firms (although you'll have to pay commissions and/or markups). U.S. Savings Bonds can be bought through banks as well as Treasury Direct.

There is no limit on how much you can invest in U.S. Treasury obligations (aside from the Savings Bonds limits). Every penny will be repaid by the government, so you get a greater amount of coverage than with FDIC insurance.

Money Market Funds Investing Solely in U.S. Treasury Securities. There are a few money market funds that invest solely in U.S. Treasury securities. For all practical purposes, they are as safe as U.S. Treasury obligations. Because they are money market funds, their returns are very, very, and let us emphasize, very low. But the money is safe. Not all such money market funds are open to new investors. But if you want the safety of U.S. Treasuries and the convenience of a money market fund, look for one that is.

If you crave safety, forget about gold. It's a speculation that booms and busts like stocks. Some foreign government bonds, such as those of Switzerland and Germany, may have very low credit risk. But they present currency risk, and that's not to be underestimated. In just the past few months, the Euro has fallen more than 10% against the U.S. dollar, making German government bonds losers (in dollar terms) for Americans who held them. If your native currency is the U.S. dollar, stick to the above-mentioned dollar-denominated investments for safety. They won't pay very high interest rates. But safety isn't free and the low interest rates are the cost of safety.

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