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Portfolio > Mutual Funds

Bring back the passbook

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Yet another (oh, about the millionth) sign of the times. According to Karen Blumenthal in The Wall Street Journal, “the dowdy savings account is making a comeback.”

According to Blumenthal, a growing number of high-yield bank savings and money-market accounts are paying interest rates — “high yield” being relative — of around 2 percent or better. That makes them a safe alternative for the many savers whose accounts are hardly bearing any interest at all, putting them at risk of losing money to inflation. Honestly, 2 percent is looking pretty good right about now.

“If you haven’t looked closely at your accounts lately, you may be in for a surprise. Checking accounts and some money-market mutual funds that invest primarily in Treasurys are yielding as little as 0.01 percent. Taxable money-market funds are paying their lowest rates ever.

Why are some savings accounts now a better deal than money-market funds, which have traditionally offered higher yields, she asks? Money-market funds invest in very short-term securities, where rates are particularly low. Plus fund-management expenses take another big bite out of the returns, even though some funds are capping expenses right now.

Again, give me the 2 percent.


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