Look For Best Parking Places For Cash

Cash can also be a parking space. When the market is clawing stocks like an angry grizzly, you can pull your money out. Both you and your dollars can rest on the sideline.

Even in a good market, cash can be a safe haven. It's where you can protect your principal if you have a big expenditure coming up within a year, maybe two.

So whether the market is up or down, cash can be a vital tool.

But not all cash is alike. Depending on the type of account, your balance can earn different rates of interest. Your access to it can also vary.

So it's important to understand differences among accounts that may seem similar or even the same.

Look at what's available at your brokerage. Many offer a variety of cash accounts. Check their Web sites to see how much they pay on balances.

Schwab, for example, divides cash into three categories. First, there's cash that you generate when you sell securities or receive dividends and interest.

"This is cash you intend to spend, as opposed to cash that you're thinking about for long-term use," said Sarah Bulgatz, a Schwab spokeswoman.

As of Oct. 10, you could get 0.75% to 2.42% on this money, depending on your total assets with the firm. The low end may not sound like much. But a checking account at your local bank, for instance, may not pay any interest at all.

For daily liquidity needs, Schwab offers an interest-bearing checking account. It paid 4% as of Oct. 10. You can also have money swept into a money market fund that pays higher interest.

If you have slightly more money you want to hold as cash, you can buy a Schwab Investor Money Fund account. As of Oct. 10 it paid 4.78% annually on a minimum balance of $2,500.

Or you could pick the Schwab Value Advantage Money Fund. That requires a $25,000 minimum balance. It paid 5.01% as of Oct. 10.

Not Insured

These types of money funds are not insured by FDIC. Money market mutual funds are portfolios of short-term investments such as commercial paper and Treasury securities. The SEC requires these funds to have average maturities less than 90 days.

But if you get a money fund through a bank, typically called a money market account, then the FDIC will insure it up to $100,000. By law, money market accounts can only offer limited check writing.

Financial firms don't always point 15ut their higher-paying cash accounts. So always ask if your firm offers more than one type. Learn about their differences.

Certificates of deposit are yet another way to let cash earn interest. These tie up your money for a set period. Early withdrawals typically trigger penalty fees.

Many CDs require you to start with at least a $1,000 deposit. Banks use the funds to make loans.

When should you invest in a CD rather than a money fund? Generally, if you think interest rates are going to fall and you want to lock in a current rate. Also, if you don't mind tying up your money.

By investing a little time online, you can compare minimum deposit rules, maturities and yields. Make a list. Or start a spreadsheet.

Banks post their own rates and other specifics. Sites like Bankrate.com group various types of accounts together to make comparison shopping easier. Such sites also post lists with links to banks.

For example, on Bankrate's site you'll find GMAC Bank's one-year CD, at 4.95%, with a $500 minimum balance, as of Oct. 10. You can use a link to go to GMAC's own site to learn more details.

Bank of America was offering 5.1% on a CD with a four-month term and a $5,000 minimum. Their only caveat: it's only available to online customers.

You can scout for money market accounts too.

For example, Bankrate.com shows that Zions First National Bank, based in Salt Lake City, was offering a money market account whose starting yield was 5.3% on a $1,000 minimum balance.

Remember, money fund yields can change over time. CD yields are fixed at the outset.

Overall, the Web makes it easy to compare accounts offered by brokerages and banks.

Shop Around

One thing's for sure: There's a lot of variety, especially on yields. According to Informa Research Services in its Oct. 2 report, $25,000 certificates of deposits maturing in three months ranged in yield from 0.25% to 5.65%.

Interest on checking accounts ranged from 0.01% to 6.10%. Yields on money market accounts with minimum balances of $10,000 ranged from 0.05% to 5.25%.

"There's a real incentive to shop around," said Greg McBride, senior analyst with Bankrate.com. "A lot of banks are willing to pay much higher returns (than others) to attract your money."