The stock market seems to be bouncing at the end of a bungee cord, and bonds are on a downhill run. What's a seeker of safe havens to do?
Look on the bright side. With inflation at about 1.5 percent, real interest rates are at their highest levels since 1989. The average money-market fund, for instance, pays 4.7 percent, providing an after-inflation return of 3.2 percent. Compare that with real returns two years ago, when inflation stood at 3.3 percent. You earned 5 percent in the average money-market fund, but the purchasing power of a dollar left in such a fund all year rose by only 1.7 percent.Still glum? Then reach for better-than-average returns among the top-performing money funds and short-term certificates of deposit, such as Strong Investors money fund (800-368-3863) at 5.4 percent or the top six-month CD from TeleBank (800-638-2265), also at 5.4 percent. That's a not-too-shabby 3.9 percent after inflation. Locking up your money in a five-year CD would increase your yield by 0.6 percentage point.
Borrowers, meanwhile, have plenty to smile about. At about 6.7 percent, 30-year, fixed-rate mortgages have dropped to lows not seen since the 1960s.
A drop in the prime rate to 7.75 percent also delivers a bit of a break to credit-card holders and borrowers with home-equity credit lines, who can expect to see prime-based interest rates adjust downward within a month or two.
New home-equity credit lines can be found at a fully indexed rate of prime plus no percentage points. Because the interest is deductible, the effective rate is about 5.59 percent for a taxpayer in the 28 percent tax bracket.