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Making Cash Grow When Interest Rates Are LowLast year, the Federal Reserve cut interest rates 11 times, making it less expensive to finance a home or car than it had been in years. But what was great for consumers may not have been so good for investors, especially those who rely on cash investments. Interest on traditional savings accounts at many banks declined steadily during the year, disappointing many savers. Most experts suggest that you keep enough cash on hand to cover three to six months’ expenses for emergencies. But when interest rates fall, you might want to review your emergency supply and consider investing excess cash in potentially higher-yielding vehicles, such as certificates of deposit (CDs), money market funds, and certain mutual funds. CDs
Mutual
Funds While low interest rates attract consumers, they can slow the growth of cash investments to a turtle’s pace. If your cash investments have yielded disappointing returns over the last year or so, other options may be worth a second look.
1) The FDIC insures CDs
and bank savings accounts (up to $100,000 per institution), which generally
provide a fixed rate of return. The return and principal value of an investment
in stocks, bonds, and mutual funds fluctuate with changes in market conditions
and, when sold, they may be worth more or less than the original amount
invested. © 2002 Emerald Publications
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