When it Comes to Your Cash, Think Safety

Building Your Own Pension PlanDon't Quit Your Day Job Just YetHis Risky Picks are Doing Just Fine

The Kuzans have relatively little cash, so Chris is anxious "to recapitalize my life." This will get easier once the Kuzans solve another problem: Lori's old house, located in a depressed suburb of Buffalo, has been vacant since the wedding. Selling the house would free up $900 a month, which could be used for college or retirement savings.

Once Chris and Lori start accumulating some cash, they'll have to determine where to put it. Given today's low interest rates and the credit-market freeze-up over the past year, it's not a simple decision. The turmoil unmasked the risks in ultra-short-term bond funds and bank-loan funds, whose popularity had zoomed because they were perceived as relatively stable investments that paid a bit more than CDs and money-market funds.

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Advisers urge young families like the Kuzans to avoid things that could suffer in a weak economy or that own esoteric investments that are hard to understand. Paul Baumbach, of Mallard Advisors, in Newark, Del., prefers ING Direct's savings account, which yields 3.0%, and Vanguard Prime Money Market (symbol VMMXX), which pays 2.2%. Paul LaViola, of RTD Financial Advisors, in Philadelphia, suggests splitting savings between the Vanguard fund and a three-month or six-month CD. Three-month CDs yield as much as 3.0%, while six-month certificates pay up to 3.4%.

Another idea is GE Interest Plus, which combines the extra yield of a short-term corporate bond with such money-market-fund features as checking. "It's like a very short-term bond you can redeem anytime," says Susan Elser, of Elser Financial Planning, in Indianapolis. For accounts of less than $15,000, the yield in mid June was 3.0%. These accounts are not insured, but General Electric is as financially solid as they come.

Of course, Chris and Lori might not want to take any risk with their savings. The good news is that short-term yields aren't likely to go much lower, if at all. And with CDs and money funds, you don't have to fear that a financial conflagration will burn through your cash the way the fire burned through Chris and Lori's house. You can replace a home -- but if you lose your savings, that's another matter.