CERTIFIED FINANCIAL PLANNER™ professionals don’t advocate stashing your cash in a mattress or coffee can—there are still those pesky issues such as theft and fire—but they do suggest some ideas for getting the most out of your cash.

Shop around. Money market fund yields have plummeted to nearly half their high of around six percent at the start of the year. Average rates on bank savings accounts have fallen to just slightly over a scrawny one percent, according to Bankrate.com—well below the annual inflation rate. Rates for certificates of deposit (CDs) have dropped to their lowest levels in seven years, making it especially tough on retirees who depend on interest earnings from their CDs. Three-month CDs were earning only 2.5[All above from computer file] percent in mid-October, and one-year CDs were earning 3 percent.

Yet better deals can be had, with some shopping around. Some banks are offering higher yields to customers who keep larger balances (but consult with your financial planner on this; it may not be financially wise to keep too much in cash). Banks that market over the Internet frequently offer higher savings rates—some over four percent.

Ladder your CDs. One trick, which can be done with bonds as well as CDs, is to ladder them. This means you buy CDs of varying maturities—say from three months to five years, dividing your funds roughly equally among them. When a CD matures, you roll it over into the longest-term CD on your ladder, because longer-term CDs usually earn more than shorter-term ones. After a while, the shorter-term CDs are replaced with longer-term higher-rate CDs, yet you have CDs maturing every few months, making available the cash you may need.

Ultra-short bond funds. Some of these funds were returning nearly five percent in September.[Lipper, computer file] Investing in these funds, unlike investing in CDs or money markets, risks your principal, especially if interest rates rise again. However, most investment experts consider the risk fairly small because of the short maturities (less than a year) the funds invest in.

Short-term bond funds. They’re returning better than most ultra-short funds, though with a little more risk because the average maturities are longer (around three years). It’s often best to stick to funds investing in high-quality corporates or U.S. Treasuries (average total return for government bond funds through the first nine months of 2001 was about seven percent, according to Lipper Inc.).

Inflation-adjusted bonds. Combining a fixed return and an inflation adjustment, these U.S. Treasury bonds are yielding about six percent. You can buy them directly or through mutual funds.

REITs. Real estate investment trusts (REITs) are higher up on the risk ladder, as are most real estate investments, but REITs generally kick off healthy dividends because they must distribute 90 percent of their net income to their investors. Average yields on the Morgan Stanley REIT index this fall were around seven percent, and you can find yields significantly higher than that. Unless you’re very familiar with REITs, you’ll want to talk to your planner or investment expert.

Pay off debts. Building easily accessible cash is probably the best option for most families, especially for something like an emergency fund where they might want to keep three to six months of bare-bones living expenses. However, if you’re sitting on a load of high-interest debt, it might be a better move to pay down some of it. Minimum debt is always good in difficult times, and paying off an 18-percent interest credit card (whose interest rates aren’t going down these days) provides a healthy return on your money.

Just be careful what debt you pay down. With a credit card, you can usually turn around and take a cash advance on the card if an emergency occurs. Accelerate payments on a car loan, that money is gone, short of selling your car. Prepay a home mortgage and you run the risk of not being able to obtain an equity loan later if you lose your job.

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November 2001 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community.