Call it the silver lining effect. While the talking heads wring their hands over rising interest rates and the danger they present to life in the known universe, I have to confess a tingling sense of comfort.

I like the idea of earning something on my money.

The world, and perhaps the universe, seems a happier place.

Only two years ago money market mutual funds weren't worth shooting. Bank money market accounts were worse. Yields were well under one percent and some accounts had no yield at all.

Today, the average money market account earns well over 4 percent. And yields are still rising. Indeed, with the 6 month Treasury bill now earning 5 percent, "idle cash" is coming up in the world. This is particularly good news for retirees because it's hard to pay the bills when stocks pay less than 2 percent, bonds pay under 4 percent, and cash pays next to nothing.

The change also means we need to check ourselves for bad habits from when cash earned virtually nothing. Here are some suggestions.

Check your core transaction account with your bank, brokerage or mutual fund firm. These accounts often earn significantly less than a money market mutual fund with the same firm. At Fidelity Investments, for instance, a non-retirement brokerage account will hold cash from sale proceeds, dividends, and interest payments in a core transaction account. Such accounts were recently earning about 3.33 percent. The same cash, moved to Fidelity Cash Reserves or Fidelity Government Reserves would earn about 4.9 percent. The lower rate on the core account isn't an evil plot: Core accounts have more transactions and, therefore, greater expenses.

Have a large portfolio or feel a need to keep a lot of cash on hand? Then check for money market mutual funds that require larger minimum balances. While Fidelity Cash Reserves and Government Reserves have minimum investments of $2,500, Fidelity Money Market Fund has a $25,000 minimum investment and yields slightly more.

Want to squeeze out some additional yield? Buy Treasury bills. You can check current yields by visiting If you use the money just for interest income, set up a yield ladder. Start with a 3 month, 6 month, and 1 year Treasury bill purchased at issue. Add a bill maturing in 9 months purchased in the aftermarket. Then replace a maturing bill with a new 1-year bill every three months. You'll get the yield of a 1-year security but have an average maturity of half that.

With a flat yield curve--- which is what happens when 3-month money earns about the same as 30-year money---a simple ladder provides the yield of long term bonds with none of the risk.

While yields on cash are rising, so are interest rates on borrowed money. A dollar of interest not paid is a dollar of interest earned, so paying down debt and paying off loans is a very good thing, however quaint it may seem.

We like to think that the interest we pay is tax-deductible and, therefore, cheap. But for most people that's somewhere between inaccurate and delusional thinking. Credit card interest and installment loan interest aren't deductible, period. Many people would be surprised to learn that little of their home equity credit line or home mortgage interest was deductible, as well.


Because the standard deduction for a joint return is $10,300 this year (it's $5,150 for a single return and $7,550 for a head of household). Many people nearing retirement have small loan balances, so their itemized deductions won't exceed the standard deduction unless they live in a high-tax state or make large charitable donations. Even then, the first $10,300 (joint return) of itemized deductions bring no tax savings.