Do not leave money around — use savings vehicles

If you were walking down the street and came upon a $20 bill, would you pick it up? Except for the stray economist — who would think that because the market is so efficient, if it really was a bill someone would have already picked it up — most of us would grab it.

Yet in this period of uncertainty about the markets, I can't believe how many people are not picking up all the money lying around.

Some of the recent market volatility has been because interest rates have been rising. While that may not be good for your adjustable rate mortgage, it is great for any money that you may have in savings.

Typically when interest rates rise, one thing happens and one thing doesn't: Borrowing costs go up, and the interest on your bank account doesn't. So why leave it there when there are a number of very safe alternatives? I'm not even including things like floating rate mutual funds where you may have principal at risk.

Let's start with online savings accounts. These are so easy to set up, you don't even need to bend over to pick up the money. Almost all online savings accounts have FDIC insurance of up to $250,000 per account (joint accounts are insured up to $250,000 per owner). You can open up accounts at more than one institution and the insurance covers you per entity.

These savings accounts are linked directly to your bank account to make transferring money back and forth easy, meaning they are liquid. In a day or two, you can move money from one to the other. Most of these accounts are now paying almost 2 percent. In other words, if you keep $1,000 there for a year, you just picked up almost $20; $10,000 for a year will get you $200. Check out sites like nerdwallet.com or bankrate.com to see which accounts are paying the most.

If you want to do a little more legwork, you can buy Treasury bills in as little as $100 increments directly from the U.S. government through treasurydirect.gov. Four-week, 13-week, 26-week and 52-week treasuries are now yielding between 2 and 2.5 percent. Also, treasuries are free from state income tax. This savings alone is probably more than you are getting in your bank account.

Depending on your income, these can even be used tax-free for higher education costs. That's way better than a toaster (I'm generationally gifted — I remember when banks gave out toasters!).

As regular readers of my column may know, I am generally not a fan of annuities, but compared to bank savings accounts, multiyear guaranteed annuities (MYGA) are like catnip to me.

These are essentially three-year or longer certificates of deposit with three important caveats.

First, it is the insurance company backing them, not the U.S. government. This means that the rating of the insurance company is an important component in your evaluation.

Second, there are 10 percent penalties on taking the interest out before age 59 ½; but third, the interest is tax-deferred until you pull it out. This means that if you're going to be in a lower tax bracket (or a lower tax state), you can pull your money out in a tax-advantaged way.

Also, many of these contracts (and they are contracts) allow for a certain amount of money to be withdrawn each year. Money above that is penalized. Depending on the rating of the company you are using, these typically pay more than certificates of deposit and around the same as treasuries (more if you use lower-rated insurance carriers).

The deferral may be why you would want to use them over treasuries.

If you have a relationship with a broker or discount broker, you can also buy brokered certificates of deposit. These are typically FDIC-insured. There probably won't be much difference in pricing between a brokered CD and an online one, although it can make sense to shop.

There are a lot of mutual fund products that espouse good yields, but many of them are more complicated than they initially seem. In fact, if someone is showing you one, ask how they fared in 2008 and 2009 when that safety was generally called into question.

There is no such thing as free money, but why have the banks be uncompetitive in their interest when, with a tiny bit of legwork, you can stumble upon far more cash?