For more income, savers have to take more risk

— -- Let's say you saved $1 million for your retirement. Given the stock market's recent woes, you're reluctant to park your million mackerels in a stock mutual fund. You want something safe.

So you decide to put your money in ultrasafe three-month Treasury bills. Three months later, the bills mature, and you collect your interest, all $125 of it. Clearly, the round-the-world cruise is going to have to wait.

Although the Federal Reserve's latest actions are providing some relief for the economy, savers are swooning. Just last year, three-month T-notes would have yielded 3.07% — not much, but enough for a bit of butter on your bread crusts when you're feeling giddy.

What's a saver to do? Most of your choices are fairly unappealing. But you can get a bit more income from your savings, provided you're willing to take a bit more risk.

Let's start with the basics. The return on a three-month T-bill is considered a riskless return. Should the U.S. government default on its debt, you'll have other things to worry about, such as whether to run with the mob in the street or run from it.

The Treasury auctioned $27 billion in three-month T-bills this week at 0.5%, which is a great deal for taxpayers but not for investors. If you want to get a higher yield, you need to take more risk. For example, you could tie up your money for a longer period.

Suppose you decide to buy a two-year Treasury note. You'll get a yield of 0.68%. If you buy a 10-year T-note, you'll get 2.07% from the Treasury.

Clearly, 2.07% — $20,700 on a $1 million investment — isn't enough to keep body and soul together, either. What else can you do?

One simple solution would be to buy a bank certificate of deposit. Although Treasury investors are willing to accept next to nothing, top-yielding insured bank CDs are yielding 3.5% to 4.5% across a range of maturities, says Greg McBride, senior financial analyst at Bankrate.com. (You can find a list of the top-yielding bank CDs on this page.)

If you're particularly worried about safety, be sure to stay within the $250,000 federal deposit insurance limit. The $250,000 limit is in effect until Dec. 31, 2009 unless it's extended. Read more about that here. You can insure more than $250,000 by titling your accounts differently. An individual retirement account at the same bank, for example, would be insured for another $250,000. You can find the details at the Federal Deposit Insurance Corp.'s website, www.fdic.gov. But, really, it wouldn't kill you to have accounts in a few banks, if only to avoid having all your money in one bank.

Because the Fed has said that it intends to keep rates low for some time, you may as well invest in a longer-term CD — say, three to five years. If you like, you can stagger your CD maturities by buying one CD every three months or so. If rates rise, you can reinvest maturing CDs at higher rates.

If you need more than 4% or so from your investments, however, you're going to have to take more risk. One consideration: high-quality corporate bonds, which are IOUs issued by the nation's strongest companies.

Thanks to the credit crisis, some corporate bonds are sporting attractive yields. For example, a bond issued by Verizon that matures in 2013 currently yields 6.5%. A bond issued by Home Depot and maturing in the same year yields 7.2%.

"You can get some pretty decent returns if you're willing to take the risks of the credit market," says Malcolm Makin, a financial planner in Westerly, R.I. Those risks can be big: If a company goes out of business and you own its bonds, you'll stand in line with the company's creditors. And if you sell the bond before it matures, you could lose money.

If you're not interested in picking individual bonds, consider a bond fund. You'll get decent yields and, possibly, price appreciation if the bond market improves. The funds in the chart have been chosen for their total return — interest and principal — and for their low expenses. When bonds yield 5%, you don't want to give a full percentage point to anyone, including your mutual fund.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. new book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. Click here for an index of Investing columns. His e-mail is jwaggoner@usatoday.com.