What's safe? Anything insured
— -- 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.
