Where to secrete your cash now

You're not going to find eye-popping interest rates, but there are lots of ways to earn modest returns -- with the priceless assurance that your balance won't drop.

You (and your savings) may have been bruised and bloodied by the stock market, but that's no reason to seek comfort by tucking your money under a mattress. Although Treasury bills are paying next to nothing, banks and brokerages are still offering safe alternatives that pay at least a little bit more -- nearly 4% -- are insured by the Federal Deposit Insurance Corp., and are backed by the full faith and credit of Uncle Sam.
Banks are particularly eager to cut you a deal. "They need deposits to boost capital and to have funds available to lend when markets loosen up," says Tom Brogan, director of retail banking practices at TowerGroup, a consulting firm.
You'll generally find the best terms at online banks, many of which are offshoots of traditional institutions. And take a good look at interest rates at community banks, which often offer incentives designed to retain current depositors as well as entice new ones. Your bank may have tiered rates -- the higher your balance, the more you earn -- which is a boon if you're moving a chunk of cash from the sale of stocks or mutual funds.
Certificates of deposit CD fans, rejoice. Interest rates are guaranteed, and the feds have temporarily increased insurance protection on bank deposits.
The FDIC raised its ceiling on deposits from $100,000 to $250,000 per depositor per bank in October. (The ceiling reverts to $100,000 on Jan. 1, 2010, so if you're thinking about depositing more than $100,000 in a CD that matures after Dec. 31, 2009, consider dividing the money among two or more banks instead.) CD maturities range from six months to five years. Some have no minimum-deposit requirement, and others require as much as $10,000 (a higher minimum does not ensure a better rate).

Despite the many recent mergers, there are still thousands of banks, so you want to be comfortable as a customer. Aaron Fine, a partner at Oliver Wyman, a financial-services strategy consulting firm, says you should find out how customer-friendly the bank's procedures are -- and, of course, make sure it is FDIC-insured. "If the Web site is cumbersome and it's difficult to make deposits, I wonder how hard it will be to take money out," says Fine. "If the process is fluid, transparent and easy to use, then I'm comfortable with it."
That said, the rate's the thing, and it pays to shop around. Yields on the highest-paying CDs range from 3.21% to 3.88%, depending on maturity (from one year to five years).

Parcel out your savings. Let's say you bailed out of the stock market, and now you're sitting on a pile of cash that exceeds the FDIC's expanded limits. To be fully covered, you could divide your money among a number of banks, but it takes a lot of time and effort to research banks and open accounts.
As an alternative, you could place as much as $50 million (honest!) through the Certificate of Deposit Account Registry Service program, and all of it would be FDIC-insured. This is how it works: You deposit your cash in one of 2,700 participating banks. The bank then parcels out the money to other banks in $100,000 chunks. The FDIC has issued an opinion that CDARS is a deposit-placement service, which means that all the money in the program is eligible for insurance. The original bank sets the interest rate and takes care of the paperwork, so you receive one consolidated statement. If you're investing $1 million or more, you should be able to negotiate a slightly higher rate than the ones that are advertised.

Build a CD ladder. Interest rates are generally low because the economy is weak and because people are flocking to safe investments, pushing down yields. But rates are likely to rise when the economy recovers. Two or three years from now, 3.88% might seem like an even-less-than-adequate return.
You can protect yourself by building a CD ladder -- that is, staggering the maturities of your CDs. If rates fall, you've locked in today's higher yields for some time; if short-term rates start to rise, you can take advantage of higher yields as your CDs mature.

Laddering your emergency fund

FYI: Banks with the highest rates in one category -- say, six-month CDs -- often show up as leaders in other CD maturities as well. Just be sure not to exceed the insurance limit at any one institution. (See "What if your bank fails?)
Or, as with the CDARS program, you could get help in selecting top-paying certificates. Some investment firms, such as T. Rowe Price and TD Ameritrade, will invest your money for you, although you may sacrifice some yield in return for the convenience.
To enroll in T. Rowe Price's Smart Ladder CDs, you fill out one application and deposit a minimum of $25,000, which is equally distributed among five CDs, with maturities from one to five years. Current rates are 1.35% to 2.7%; higher rates are available for larger deposits. When a CD matures, it is automatically reinvested in a five-year CD to rebuild the ladder.
One big advantage: CDs bought from brokerages may be redeemed without penalty before the term expires, although their values may fluctuate.