These are punishing times for savers. Bank savings accounts pay 1%, on average. Five-year certificates of deposit pay less than 3%. To get 5%, buyers are looking to 20-year bonds issued by companies with good-not-great credit ratings.

Last week I highlighted one alternative for investors seeking high income: master limited partnerships, which pay around 7% and offer tax breaks. For another source of 7% yields, consider the cross-dressers of the stock world: preferred shares, which are bought and sold like ordinary stocks but behave more like bonds.

The market for listed preferred shares is relatively small. In the U.S., it s about 1% of the market for traded common stocks by value. For such a small asset class, preferreds come with a confounding variety of attributes. Most pay fixed rates but some pay variable ones. Some are convertible into common shares but most are not. Most are perpetual, with no due dates, but most are also redeemable, meaning the issuer can repurchase them after a given time. Companies must generally pay preferred stock dividends before common stock ones. Some preferred issues require that missed dividends be made up before restarting common stock dividends ( cumulative preferreds ) and some don t.

Investors who are familiar with bonds know that yields are usually a function of both the coupon rate and the market price, so a 6% bond might yield 7% if buyers can get it at a discount to its par value. Same with preferred shares.

One more thing: When companies go bust, funds recovered during liquidation flow to investors in a prescribed order. Holders of secured debt, which is backed by particular assets, get paid first. Then come senior and subordinate debt holders in that order. Only then are preferred stock holders paid, just before common stock holders. Because of this relatively weak claim on assets, and because companies can miss preferred payments without shattering their credit ratings (as they would by missing bond payments), investors must be paid handsomely to hold preferred shares. Thus, the high yields. Preferred shares are relatively easy and inexpensive to issue, so most today come from companies with frequent financing needs: banks, utilities and real estate trusts.

If you buy preferred stocks, pay only loose attention to the quarterly earnings that common stockholders obsess over. More important are things like cash flow and debt levels that could affect credit ratings. Also, as with bonds, preferred stock prices tend to move inversely to changes in prevailing interest rates.

In the first few months of 2009, preferred shares took a severe beating, to the point where the yield on the S&P U.S. Preferred Stock Index ballooned to 16%. The index has come raging back though, and has a current yield closer to 7%. For all of 2009, the preferred index bested the S&P 500 index of common stocks even before counting dividends. Below are three preferred issuers, each of which has more than one issue outstanding.

Bank of America

It s anyone s guess whether Bank of America (BAC) common stock is a good deal right now. The answer depends on whether 2010 brings rising prosperity or another downturn, and, with it, the need for more bank capital through dilutive stock issuance. We can be relatively confident about a few things, though. The government has expressed a keen interest in keeping BofA solvent. A flood of new common shares only makes preferred stockholders more likely to get paid. And while the bank has almost eliminated its common dividend, it still pays a penny a share. Preferred investors must get their end before that penny can be issued. The company s Series J non-cumulative preferred (Ticker: BAC-PJ), one issue of many, trades at $22 and change with a yield of about 8%, and may be bought back in November 2012 at $25.

Arch Capital Group

Arch Capital Group (ACGL) was one of the most successful of the class of property and casualty insurers that formed the year after the 2001 terrorist attacks to take advantage of a spike in premiums. Investors who bought shares in the 2002 initial offering have enjoyed double-digit yearly gains. The common stock pays no dividend, though, and analysts say premiums are headed lower. The good news: The company s Series A preferred yields 8%. The bad news: The return might be short-lived. The shares are redeemable in February 2011 at $25, close to their current price.

Vornado Realty Trust

The nation s third-largest real estate investment trust, Vornado Realty (VNO), owns office buildings, retail buildings, malls and shopping centers, with a heavy presence in New York City and Washington, D.C. It s a difficult time for landlords, who are struggling with vacancies and with lower rents on renewed leases. Vornado s common shares are about 40% below their mid-2006 price. For now, Vornado is using cash flow to repurchase its shares. Analysts expect it will snap up more property at low prices in what is expected to be a prolonged slump for the industry. The common shares carry a dividend yield of 3.6%, but the Series I cumulative preferred yields 7.6%. It s redeemable in August 2010, but only at $25, almost 15% above its current price.