Savings bonds, CDs and money funds are alternatives for savers with stock market jitters

Posted: Thursday, March 22, 2001

NEW YORK (AP) -- If the ups and downs of the stock market are making you queasy about your savings, there are alternatives from inflation-indexed U.S. Savings Bonds to bank certificates of deposit and money market mutual funds that can provide some earnings stability.

Most experts point out, however, that stocks traditionally have outperformed other investments over the long run and should remain a significant part of your savings strategy, especially for retirement.

The markets these days ''feel like a roller coaster ride,'' acknowledged Don Blandin, president of the American Savings Education Council in Washington.

''But if you're planning for the future, you need to be a long-term investor,'' he said. ''The worst possible thing you could do is take your money out of the market now. You'd be selling low and likely miss out when there's a rebound. You have to give it time.''

Still, there are plenty of options for savers who don't want to put more money in the market.

One of the lowest risk long-term investments is the I-Bond, a U.S. Savings Bond with a fixed rate for 30 years and an inflation component that's adjusted every six months. It's currently yielding 6.49 percent.

There are a number of shorter-term instruments, too, although rates on most of these have been falling as the Federal Reserve moves to pump up the economy through lower interest rates.

''Certificates of deposit are still a good choice for those who want to diversify,'' said Greg McBride, a financial analyst with bankrate.com, an online financial information service.

Six-month CDs available from banks and other savings institutions are currently yielding about 4.30 percent a year, according to bankrate.com's nationwide survey. One-year CDs offer about 4.38 percent. Like other bank accounts, the principal is insured up to $100,000 by the federal government.

Another possibility is a money market deposit account. Some, especially those offered by Internet banks, carry annual yields of between 5.25 percent and 6 percent.

''A money market account is an excellent place to park cash for the short term if you're trying to avoid volatility in the stock market,'' McBride said. ''A big advantage is that they're completely liquid. So if you want to ease your way back into the market, you can write a check out of this account every month (to buy equities) when you're ready.''

The key to coping with volatile markets is ''not to do anything until you've thought it through,'' said Peter Crane, vice president of iMoneyNet Inc., a Westborough, Mass., company that monitors money market mutual fund and other savings rates. ''Don't make decisions based on emotions.''

He suggested, for example, that nervous investors consider shifting some of their holdings to slightly more conservative alternatives such as a broadly diversified stock fund or a balanced fund that has both stocks and bonds.

If you don't want to make new investments for a while, you might consider money market mutual funds at brokerage houses, which currently are yielding more than 5 percent.

Don Silver, the author of ''Baby Boomer Retirement,'' noted that savings decisions are very personal -- and related to your age and your goals.

''The younger you are, the easier it is to try something new with your money,'' he pointed out. ''You have time to recover, and that makes risk less risky.'' On the other hand, he said, ''If one is close to retirement or has suffered a big loss, even on paper, in the stock market, this might not be the right time to take on additional risk.''

He suggests savers consider a ''dry run'' of strategies before they make any changes.

''Write your savings plan or new portfolio plan on a piece of paper and put it in a drawer or under your pillow for a week,'' Silver said. ''Pretend you've done it and see how you sleep at night. If you find you're under tremendous pressure from these make-believe investments, they probably aren't the right ones for your psyche, let alone your financial health.''

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On the Net:

www.asec.org

www.publicdebt.treas.gov

www.imoneynet.com

www.bankrate.com

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