Q.  I have $27,600 left in my IRA account. On my quarterly statement it looks like I received 96 cents in interest. This is in a money market account. I just can’t leave this money and receive only 96 cents in a quarterly statement. This is all the money I have. Surely I can invest it to make more than 96 cents. Help, I’m 76 yrs old.  —R.B., by email

A. You have three basic choices here. One is to move your account to an institution that is more generous. That probably means moving to a credit union. Another choice is to divide your money into time deposits. It is unlikely that you will need every dime of your $27,600 in a single day, so why invest it that way? Suppose, for instance, that you divided your money into a series of time deposits like this: $2,600 MM account, $5,000 in a 6 month CD, $5,000 in a 1 year CD, $5,000 in an 18 month CD, $5,000 in a 2 year CD, and $5,000 in a 30 month CD?

Then, as each CD matures, you could replace it with a new 30 month CD. Eventually, you would have the average yield on 30 month CDs, but you’d always have a CD maturing every 6 months in the event you needed cash. This procedure is called “laddering.” It is a nice way to manage your savings for the highest safe return.

You can explore what this might do for you by visiting www.bankrate.com, clicking on “find rates” and going to “credit unions.” Here are the yields I found when I went there:

Maturity Avg. Credit Union
MMA 0.47%
6 Months 0.77%
12 Months 1.134 %
18 Months na
24 Months 1.478%
30 Months 1.637%
36 Months 1.964%

These yields are somewhat better than the average bank yield. You could also get some advantage simply by laddering at a bank that offers above average yields.

As a third step you might also consider putting a small portion of your money into something that has more risk, but offers a much higher yield. This could be in a single stock or in a broadly diversified mutual fund. Here are two examples:

  • I own very few individual shares, but among the stocks I do own, one is ATT.  It currently has a dividend yield of 6.3 percent. A hundred shares of “T” will cost about $2,650 and yield $168 a year. You would need to invest $33,600 in a money market account yielding 0.5 percent to earn the same income. While a one-stock portfolio is risky, the commitment would be less than 10 percent of your IRA.
  • A less risky alternative would be to invest $3,000 in the Vanguard Wellesley Income fund (ticker: VWINX, expense ratio 0.31), recently yielding 4.07 percent. This fund is about 40 percent stocks and 60 percent bonds. It rates 5 stars from Morningstar and has been in the top 10 percent of its category over the most recent 3, 5, 10, and 15 year periods. In 2008 it lost 9.84 percent. A minimum $3,000 investment would bring $120 of income. You’d have to invest $24,000 in a 0.5 percent money market account to earn the same income. Is it a risk? Yes. But measure it. If 10 percent of your money had been invested in this fund in 2008, your loss for the year, one of the worst in history, would have been 1 percent of your IRA account.

Q. I know that, in general, 401(k) loans are a mistake.  I am currently not making much with my 401(k) and will be soon in the market for a new car.  With 0 percent interest loans disappearing, wouldn't it be better to pay myself the 3 percent or 4 percent for a 401(k) loan than to pay a dealer or bank?  I have excellent credit and will not have a problem getting a good financing deal.—T. S., by email

A. What makes you think 0 percent interest car loans are disappearing? Cash for clunkers is over. Consumer confidence is down. The factories are still producing shiny new cars. Today’s paper advertises 0 percent car loans. My bet is that tomorrow’s paper will too. This argues against borrowing money from your 401(k).

Correction: In my column of 8/05/2010, I incorrectly stated that it was unlikely someone would pay a higher Medicare premium because they were not paying through deduction from their Social Security benefits. In most instances, this is true. But those receiving Social Security benefits are protected from premium increases in years of no cost of living increase, while those NOT receiving Social Security benefits are not protected from premium increases. As a result, a spouse receiving benefits may pay $96.40 a month this year while the spouse not receiving benefits may have to pay $110 a month.