Where to stash your cash cushion

Last fall investment guru Jim Cramer urged millions of TV viewers to cash out money from stocks that they'll need in the next five years to weather the approaching storm.

Few of the financial planners we interviewed came close to that state of alarm. Many said that retirees should have at least one year's worth of expenses in cash (bank accounts or money-market funds). Another major portion of retirees' portfolios should be in fixed-income investments. Working people should have an emergency fund equal to about three to six months of expenses.

Safe and insured

Some of the best rates for super-safe, FDIC-insured savings, certificates of deposit, and money-market accounts have been offered by banks that were reportedly in trouble, such as Corus Bank in Chicago; Flagstar Bank in Troy, Mich.; and GMAC Bank, part of the financing arm of General Motors. Deposits in FDIC-insured banks are covered up to $250,000 per depositor. (That coverage is due to drop to its historical rate of $100,000 at the end of this year.) Go to www.fdic.gov for details on how to maximize your deposit-insurance coverage.

When a distressed bank is acquired by another bank, the money is still insured. It usually takes no more than two business days to access your money. The only risk is that the acquiring bank doesn't have to honor the interest rate offered by the prior bank. That makes long-term, high-rate CDs from troubled banks less attractive.

Finding the deals

For a savings or money-market account, compare bank yields on Web sites such as Bankrate.com with those you can get at local banks. In early December, for example, Flagstar Bank offered a money-market account with an annual percentage yield of 3.55 percent. Money-market accounts usually have a minimum balance requirement (although there is none at Flagstar) and limits on the number of transactions you can make each month. To avoid those restrictions, choose a regular savings account. Online banks might offer higher rates on those accounts.

Bank CDs are another safe option. Six-month and one-year CDs were both paying, on average, around 3 percent in December. You might be able to earn a tad more interest if you buy your CDs through a brokerage firm. For example, in early December Merrill Lynch offered three- and six-month CDs with APYs of 3.75 percent. Just make sure you know which bank issued the broker-sold CDs. If you already have money in that bank, you run the risk that your total deposits might exceed the FDIC coverage limits.