How to Earn More Than 3% on Your Cash

Updated on December 11, 2008.

Even though the Federal Reserve has cut rates down to 1% -- the ninth rate cut since September 2007 -- it doesn't mean the days of earning more than 3% on your cash are completely over.

Typically, banks adjust yields on short-term accounts, like certificates of deposits (CDs) and money-market accounts, to reflect the federal funds rate, says Greg McBride, senior financial analyst at Bankrate.com. (Also, yields on Treasurys with comparable maturities often impact CD yields.) But not all banks are acting so predictably these days. Even as the funds rate dips into historically-low territory some banks are actually raising the yields they pay on certain accounts.

The motive: to attract more banking customers and shore up cash. Banks are increasingly turning to consumer deposits as a source of liquidity, in part, because -- for the first time in a decade -- hedge funds and insurance companies aren't buying bank loans, says Keith Leggett, senior economist at the American Bankers Association. "Those markets have largely frozen up," he says.

So, in an odd twist of fate, the credit crunch has actually kept some yields on bank deposit accounts from plummeting, explains McBride. While the average yield on six-month and one-year CDs are 2.74% and 3.23%, respectively, more than two dozen national and local banks are offering yields well above those levels, according to Bankrate.com. And even with the Fed's latest decision to cut the funds rate down to 1%, some of these offers may disappear, but not all of them, says McBride.

While even the highest yields out there aren't what they were a year or two ago, consumers can find accounts that offer attractive yields of 3% or more. (Just make sure the account is FDIC-insured. That way, up to $250,000 of your money is secured should the bank shut down.) One of the easiest ways to shop around for high-yield accounts is on Bankrate.com, which lists bank offers from across the country.

Here are some of the highest yields offered on CDs, savings and money-market accounts.