/Boost Returns With Low Interest Rates

Boost Returns With Low Interest Rates

The Federal Reserve quietly lowered the federal fund rate over the summer.

Financial gurus consider the effects of low-interest rates on investments to be mixed.

However, there are ways for savvy investors to take advantage of the situation. (Yahoo! Finance)

Change your bank for higher returns.

Many investors ignore cash returns in their low yielding bank savings account, with interest rates of less than 1%. “Consider instead an online savings account where yields can be found in the 2.5% neighborhood, with the protection of federal deposit insurance and the ability to access the money as needed,” says Greg McBride, chief financial analyst at Bankrate.com. By simply searching for higher yielding savings accounts, investors can easily increase cash account returns. Currently, online banks offer returns above 2% with FDIC insurance up to $250,000 per depositor at an individual bank. While these returns aren’t immune from declines, bank savings account rates tend to hold up better than those of money market mutual funds.

Preferred securities offer the best of both stock and bond returns.

Preferred securities are hybrid investments that have fixed par values, which means the face value, and make scheduled coupon payments, like bonds. They also carry credit ratings and have long or no maturity dates and might be callable or eligible for redemption by the issuer at a certain date. Preferred stockholders have a higher claim on dividends than the common stockholders. That explains the name preferred, and a lower claim than the companies’ bondholders. Similar to stocks, preferred shares aren’t required to repay the principal. But preferred securities come with two key risks: interest rate risk and credit risk. Because of those risks, preferred securities offer higher relative yields than similar corporate bonds, says Scott Krase, president at CrossPoint Wealth. One fund to consider: iShares Preferred and Income Securities ETF (ticker: PFF), which currently yields 5.6%.