Where to Earn More on Your Savings

Below are the best — and safest — options (you can research the mutual funds mentioned in this article by going to Morningstar.com):

Money-market accounts and CDs from online banks: You may be surprised to learn that federally insured online banks now pay as much as six times the national average on money-market accounts (0.91 percent vs. the 0.14 percent average) and more than three times the national average on one-year CDs (1.15 percent vs. the .34 percent average). If you’re willing to lock up some savings for five years, you can earn as much as 1.8 percent with an online bank. As a rule, the longer the CD, the higher its rate.

Each bank has its own early-withdrawal penalty rules for cashing in CDs before they mature, so be sure you know the policy before buying a CD. Even with the penalty, however, you might still come out ahead if you cash in a five-year CD early rather than keeping your money in a lower-yielding, penalty-free money-market account. Check out Bankrate.com for the nation’s top-yielding online money-market accounts and CDs.

What if the market drops? This type of CD is also insured by FDIC, so you’re guaranteed not to lose your original deposit if you hold it to maturity. Here’s the caveat: If you withdraw money before the CD matures, you’ll be hit with a penalty and could take a loss. Each bank and brokerage has its own withdrawal rules, so read the fine print on a variable-rate CD carefully before buying one.  

Interest rates are so low now that the fixed rate on I bonds is currently zero percent, which means the bonds are paying the inflation rate: 3.06 percent. The Treasury Department sets I bond rates every six months; the next time will be May 1. For more about U.S. Savings Bonds, read the NextAvenue.org article The New Rules for Buying and Giving U.S. Savings Bonds.

Short- and intermediate-term Treasury and GNMA mutual funds and exchange-traded funds (ETFs): These funds and ETFs buy a mix of government securities, either Treasury bills, notes and bonds or pools of government-insured mortgages from Ginnie Mae. Treasury funds and ETFs currently yield under 1 percent; GNMA funds are yielding about 3 percent.

Bond funds are not entirely risk-free. When interest rates go up, the value of these funds go down. You’ll minimize risk by sticking with Treasury and GNMA funds with an average maturity (the average number of years before the funds' bonds mature) of less than five years.

Short-term, tax-free municipal bond funds: These funds, which hold bonds issued by states and municipalities, currently yield about 2 percent. That may not sound like much, but remember: The interest is free of federal income taxes. For someone in the 28 percent tax bracket or higher — the most suitable kind of person for this type of fund — that 2 percent tax-free return is the equivalent of earning a taxable rate of 3.5 percent. Just keep in mind that, like other bond funds, there's the added risk that the value of these funds could fall if interest rates rise.

Short- and intermediate-term corporate bond funds and ETFs: These funds and ETFs hold portfolios of debt issued by American corporations, and they're enormously popular now. That's because they currently yield 3 percent to 5 percent. But they are riskier than short- and intermediate-term Treasury and GNMA funds and ETFs because the corporate bonds aren’t backed by the government.