I just got an email from HSBC indicating that they were reducing their rate on online savings accounts from 3.55% to 3.05% to better reflect the drop in rates from the Fed. I’m not much of rate chaser, but given how low rates are getting I need to give some thought into making my money work a little harder. This is not only a problem with just my HSBC savings accounts, but across all my investment accounts. I hate to say it but I’m not fully invested at the moment. I would say I have nearly 30% of my assets sitting in cash.

When interest rates were over 5%, I had plenty of options between CDs, Treasury Bills, and even bonds. Now, I don’t have that many options that I find all that attractive. I don’t want to move my money around from place to place to chase an extra $75 a year which would be approximately the after tax difference on $10,000 between what I’m getting at HSBC versus the 4.05% at Countrywide. There are better rates to be had if you do a little digging at sites such as money-rates.com. I’m not so interested in putting my money in some fly by night operation. I realize my principal would be FDIC insured, but I hate to go through any bueracratic hassle if the bank were to actually fail.

So what are my options? I’m not looking to make any long term investment with the money. I’m just looking for somewhere easy I can park money. While this money is not a part of my emergency fund, it’s not money that I’m ready to invest. It’s money that I want to have around if I were to come across a truly great opportunity. It’s not alot of money, but it’s enough that earning a better rate of return could potentially make difference of a few hundred dollars a year. I want liquidity and low risk.

  • Open an Account with Fidelity, Schwab or other brokerage that offers MA Tax Exempt Money Market Fund. The expense ratios on the standard funds for the masses are only marginally better than HSBC.
  • Loan Participation Funds: These are funds that effectively invest in loans that banks make. They’ve been performing terribly as of late given the current interest rate and credit environment. Not Low Risk.
  • ARPS (Auction Rate Preferred Securities): These securities have yield similar to longer term yields but because they could be sold periodic auctions better liquidity. Had I known about these a year ago, I think I mightve placed much of my cash in such instruments. However, the liquidity that had previously been taken for granted is being assaulted Of course I still don’t understand how to invest in these.

The options just aren’t that great currently. Then again, maybe this is just a sign that I shouldn’t be in as much cash as I am. The Fed has been lowering the fed funds rate to increase the amount of money that is available in the economy. The corresponding reduction in what money market funds are paying may lead me to take on some additional risk.