-- As lawmakers debate whether to approve a $700 billion financial rescue package, regular folks have a more immediate concern: how to salvage what's left of their savings.
Savers who are many years from retirement should probably take a deep breath and leave their 401(k) plans alone, financial planners say. Shifting your money out of stocks and into conservative investments might help you sleep at night, but you could miss a big turnaround in the market. In addition, returns on low-risk investments may not keep up with inflation, says Lydia Sheckels, a financial planner for Philadelphia-based Wescott Financial Advisory Group.
But what about money you need for a down payment on a house, or next year's college tuition? Where should you stash your rainy-day fund? And what should you do if you plan to retire in five years?
Here's a look at pros and cons of some popular places investors go when they're seeking higher ground:
Certificates of deposit.
Although average CD rates are sharply lower than they were a year ago, their rates have gone up in the past few weeks.
If consumers shop around for the top-rated CDs they can find some good teaser rates, which are offered by banks that are trying to raise capital. "CDs are probably offering you much more than money market funds and Treasuries, which only have a fractional interest rate because of the staggering demand for them now," says Gary Schatsky, a financial planner in New York.
In the wake of several high-profile bank failures, though, some investors are wondering whether their CDs are really safe.
No one has ever lost any money in insured deposits. When a bank is taken over by the Federal Deposit Insurance Corp., customers typically have access to their insured deposits by the next business day.
The limit on insured deposits is $100,000 for individual accounts, and $200,000 for joint accounts. The bailout bill approved by the Senate on Wednesday would temporarily increase the limit to $250,000, or $500,000 for joint accounts.
Here's what's not guaranteed: the interest rate on your CD. If your bank fails and another bank acquires it, there's no guarantee you'll continue to get the same interest rate until the CD matures. If the new bank decides to lower your rate, you can redeem your CD, plus interest you've earned, without paying a penalty.
Troubled banks have been known to offer above-average CD rates in an effort to attract more deposits. For example, Washington Mutual was offering 5% on its 1-year CD before it was seized last week by the FDIC and sold to JPMorgan Chase. In this case, though, investors are in luck: A spokesman for Chase says the bank will honor the rate on WaMu CDs.
Money market funds.
Money funds invest in short-term, high-quality interest-bearing securities, such as Treasury bills, and distribute the interest, minus expenses, to shareholders. Share prices are kept at $1 per share, and many funds allow you to write checks against your account.
Faith in money funds was severely shaken on Sept. 16 when the Reserve Primary fund fell below $1 a share. The news sparked a run on money funds, mostly by institutional investors. In response, the Treasury Department announced a plan to temporarily guarantee money funds.
The guarantee is limited to assets in money funds as of Sept. 19, and will only remain in effect for three months. Participation by money funds is voluntary, and they must pay a fee. So far, eight of the 11 largest money fund managers have signed up, says Peter Crane of Crane Data.
And what about money invested after Sept. 19? While those funds won't be covered by the guarantee, the program has made money funds safer for new investors, too, Crane says. That's because the guarantee stopped investors from pulling their savings out of money funds, which was the biggest threat to their survival, Crane says.
Even for conservatively run funds, he says, "If everyone tried to sell at once, you'd have a major issue."
The Reserve fund blowup also caused money funds to "get religion" and invest their assets more conservatively, Crane says. That has made the funds safer but also hurt yields. The average seven-day yield for money funds this week was 1.62%, according to iMoneyNet.
Bank savings accounts.
Still wary of money funds? If you're willing to shop around, you can find bank savings accounts that offer even higher rates than the average money fund. Plus, your savings will be covered by federal deposit insurance, as long as you stay within insurance limits.
For example, E-Trade Bank is offering 3.25% on its savings account, with no minimum. HSBC Direct is offering 3.2%, with no minimum. You can find more information at www.bankrate.com.