Don't listen to Chicken Little-you can keep your savings safe.

The sky is falling and your nest egg is in danger!

You've heard that one before, right? Take a deep breath and put away that shovel. Your backyard is still not the best place to bury your life savings, even in these troubled economic times. Just make sure that you're treating that stash right.

A regular savings account is hardly the safest choice. A standard one with a major U.S. bank today brings a 0.2 percent annual interest rate. But inflation is running amok at 5 percent. In other words, your carefully stashed $100,000 will be worth less than that in next year's dollars, or about $95,200 after accounting for interest and inflation.

CDs and money markets

If you go beyond the standard savings account, you'll find investment choices that are likely to outrun the inflation monster without risking your shirt in the process.

A certificate of deposit (CD) offers much better interest rates, sometimes topping the 5 percent annual yield mark for a five-year certificate. These instruments are about as safe an investment as you'll find, but you need to make a serious commitment when you buy them. There are penalties for early withdrawal, and the higher yields belong to CDs with longer lock-in terms. You can mitigate that downside with "laddering" -buying CDs with staggered investment periods; then, however, you miss out on the best total returns.

A money market account or fund offers rates near those of a decent CD, but without the multi-year commitment. It's a sane balance between liquidity and inflation pacing that should probably play a part in most savings strategies.

Stocks and bonds

Municipal and industrial bonds often come with high interest rates and occasional tax benefits. But now you're treading in risky waters. The higher the bond's yield, the riskier the underlying business. Junk bonds look tempting on paper, but that nickname actually means what it sounds like it means.

Stocks are another famously risky bet, but some of the biggest names in business also happen to pay out serious dividends to their shareholders. You won't get rich quick on dividend champions alone, but they can pay north of 5 percent a year, regardless of the underlying stock's price movements. Keeping those payouts steady, or even rising, is a point of pride for the big bosses, so buying those shares at low tide makes a lot of sense.

Risk tolerance

Your risk tolerance will dictate how you should stash away those hard-earned dollars. The stock market is for the youngsters and gamblers among us, CD ladders and money market accounts appeal to the most risk-averse investors, and bond funds or U.S. Treasury notes fall somewhere in between.

Whatever your choice for growing your savings, don't forget that flimsy interest rates can be as risky as high-flying tech stocks when inflation blows by in a cloud of dust.

Published on October 14, 2009