It takes high risk tolerance to earn more on savings

— -- Invest $10,000 in the average one-year bank CD these days and, thanks to the magic of compound interest compounding, you'll earn bupkis by this time next year.

Savings rates are lower than an ant's basement — which is good for the economy but terrible for savers. If you want higher rates, you'll need either more patience or a higher tolerance for risk.

The Federal Reserve has been pushing rates down since September 2007. Currently, its fed funds rate stands somewhere between zero and 0.25%, its lowest ever.

Low interest rates will help push the nation out of recession. Low interest rates make it easier for businesses to borrow and expand. Eventually, companies should stop laying off workers and even start hiring them.

But savings rates typically follow the fed funds rate, which means that savers are getting shaved. The average money market mutual fund, for example, yields just 0.13%, meaning a $1 million account would generate just $108 a month in income.

You can fare better by locking up your money for a year. The average one-year bank CD yields about 2%, according to Bankrate.com, which tracks rates. And if you buy a five-year CD, you'll earn about 3.1% a year.

But don't reach for that five-year CD, says Greg McBride, senior financial analyst for Bankrate.com. Pathetic as today's one-year CD rates are, they are higher than the current rate of inflation. That's not a high bar: The government's consumer price index has actually fallen 1.3% the past 12 months, meaning that a dollar now has more purchasing power than it did a year ago.

Sooner or later, McBride figures, inflation and interest rates will rise, meaning that CD rates will rise, too. If you can, tough this year out with a 12-month CD, and you'll probably get a better rate when it matures.

But there's no good reason to lock into a five-year, 3.1% CD now. Inflation has averaged about 3% a year since 1926, and if the inflation rate rises, interest rates will, too. "Short maturities give you the ability to reinvest so you can continue to stay ahead of inflation once rates and inflation perk up," McBride says.

If you can't stand to lose money, then your only alternative to bank CDs is Treasury securities. But those yield even less than CDs. A one-year T-bill, for example, yields just 0.42%. A 10-year T-note yields 3.54%, and there's no reason to lock in that rate for a decade.

You might, however, consider TIPS, or Treasury Inflation-Protected Securities. TIPS have two parts: a fixed rate and an inflation kicker.

The most recent five-year TIPS issue, which was sold at auction in April, has a 1.25% interest rate. But the government adjusts your principal up or down every six months according to changes in the consumer price index. If the CPI were to rise 1.5% over six months, for example, the government would add 1.5% to your principal, and pay 1.25% interest on the entire amount.

(In case of deflation, you're guaranteed to get at least your original principal at maturity.)

The government uses the so-called headline CPI index, which includes volatile food and energy prices. If there's an energy crunch — or a famine — your TIPS should fare well.

You can buy TIPS directly through the Treasury at www.treasurydirect.gov. Keep your TIPS in a tax-deferred retirement account, such as an IRA, because both your interest and any principal adjustments are taxable the year you receive them.

If you want higher yields and aren't concerned about losing money, consider a municipal bond fund. Muni interest is free from federal income taxes.

Thanks to the credit crunch, muni rates are higher than usual. A 10-year, high-grade muni now yields 3.54%. Someone in the 28% tax bracket would have to earn 4.92% in a taxable bond to get 3.55% after taxes.

With rates so low, you can't afford to give much yield away. The funds in the chart charge less than 0.5% in annual expenses. But if you can't take the risk, get a bank CD. Sooner or later, they will be out of the cellar.

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. Twitter: www.twitter.com/johnwaggoner.