Clark talks CDs, tax-free municipal bonds/money market funds on clarkhoward.com

Clark wants to drill down a bit further and explain what the current economic climate means to you right now.

A consequence of the financial turmoil is that CD rates have pumped up. You can again today earn 5% or more on 1-year through 5-year CDs. Of course, that only means you'll be running in place with the rate of inflation -- but it's still better than where we've been. Meanwhile, an oddball 7-year CD -- an unusually lengthy term -- is today netting 5.4%. (Editor's note: Rates effective on Sept. 25, 2008.)

Clark likes BankRate.com for ferreting out CD rates. He also recommends you check your local paper for ads from nearby credit unions and community banks. As usual, his caveat about staying well within FDIC limits -- do not exceed $90,000! -- stands firm. And whatever you do, don't go to a giant monster mega-bank –- unless you want terrible customer service.

If you household income exceeds $75,000, you might want to consider municipal bonds. That's where you become a bank for local governments and buy up their debt. Because tax rates are almost certain to go higher no matter who's in office come January, tax-free municipal bonds are an attractive option. You can buy individual bonds or bond funds. Clark's recommendation is for the latter to limit your risk.

Another option for high-income earners is a tax-free municipal money market fund. Vanguard is really the granddaddy of tax-free (aka tax-exempt) municipal bond funds. Their funds have lower management expenses than anybody else, so the effective return you get is higher. When it comes to length, Clark recommends an intermediate term.

But realize that while money market funds are a zero-risk account for idle cash, bond fund values change daily -- so the latter choice is not the best bet for short-term money that you'll need anytime within 7 years.

What others are saying

investing
Im 55, my husband is 60. We are both retired teachers who have gone back to work for the state of ga. Our income has risen and we have NO deductions. We would like to put several thousand a month into some kind of pretax savings. With todays financial climate we are very unsure what to do. Any help would be appreciated.
By Lynne porterwhitmire @ 09/28/08 07:56:33 PMreport abuse
Re: FDIC
There are strong indications that the government would bail out FDIC. Or, like with WaMu, that they'll arrange for another company to take over to avoid the giant hit to the FDIC fund.

And if a bank goes under and FDIC can't cover it somehow, you'd need to know in advance and pull out your money. Otherwise it doesn't really matter if it's a CD or regular account.

As a side note, credit unions are actually covered by NCUA, not FDIC. They both have equal coverage levels (at least for bank accounts, I dunno for IRAs) but are independent of each other.
By jon @ 09/26/08 05:53:20 PMreport abuse
FDIC
Is it not possible that FDIC may not be there if enough banks or credit unions fail? What are the possibilities of that happening and your CD is with a bank that has failed?
By marlene @ 09/25/08 11:13:08 PMreport abuse

investing

Im 55, my husband is 60. We are both retired teachers who have gone back to work for the state of ga. Our income has risen and we have NO deductions. We would like to put several thousand a month into some kind of pretax savings. With todays financial climate we are very unsure what to do. Any help would be appreciated.

By Lynne porterwhitmire @ 09/28/08 07:56:33 PMreport abuse

Re: FDIC

There are strong indications that the government would bail out FDIC. Or, like with WaMu, that they'll arrange for another company to take over to avoid the giant hit to the FDIC fund.

And if a bank goes under and FDIC can't cover it somehow, you'd need to know in advance and pull out your money. Otherwise it doesn't really matter if it's a CD or regular account.

As a side note, credit unions are actually covered by NCUA, not FDIC. They both have equal coverage levels (at least for bank accounts, I dunno for IRAs) but are independent of each other.

By jon @ 09/26/08 05:53:20 PMreport abuse

FDIC

Is it not possible that FDIC may not be there if enough banks or credit unions fail? What are the possibilities of that happening and your CD is with a bank that has failed?

By marlene @ 09/25/08 11:13:08 PMreport abuse

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Sep 25, 2008 -- Clark talks CDs, tax-free municipal bonds/money market funds

What others are saying