Are you missing out on free money?

• Position: Your Life - Taking advantage of interest rates - Brief Article

Are you missing out on some free money? A study released by the Consumer Federation of America (CFA) found that Americans could be earning a lot more in interest on their cash without taking any, or little, additional risk.

The study, based on Federal Reserve data, claims that Americans hold more than one trillion dollars in low-yielding savings accounts and could earn another $30-50,000,000,000 in interest by shifting that cash into higher-earning alternatives such as money markets and certificates of deposit. What the report found especially surprising was that 70% of that trillion dollars was held by just seven percent of the households, with each of them stashing at least $25,000 or more in savings accounts.

Of course, most families want to and should have some cash in a savings account that they can easily get into. It's good for small emergencies or temporary holding of funds. It is not good, though, say many experts, for holding large amounts of cash for longer periods of time--not when you can find safe alternatives that pay interest rates two to three times higher. Even retirees who want to hold cash to help pay for retirement expenses may wish to consider these alternatives.

One of the problems that the CFA study pointed out was that 57% of those with savings accounts don't know the interest rate on the account. According to figures from Bank Rate Monitor, the passbook savings account rate in the largest cities in the U.S. average a meager 1.42%, with some major banks paying less than one percent. Thrift passbooks in these cities averaged 1.84%. It is possible to find passbook accounts around the country running closer to three percent, but even this rate remains below cash-equivalent alternatives. The following are some alternatives, what they pay, and why they may be a better choice for you:

Certificates of deposit. The study found that one-third of savings account holders thinks there is little difference between CD and passbook interest rates. In fact, according to Bank Rate Monitor, average a...