I frequently get asked by individual investors how they can earn more money on their cash. With interest rates of traditional savings vehicles such as money market accounts, money market mutual funds, and CDs all paying from 0.5% to 2% annually where should an investor look? My answer inevitably is that to earn significantly higher yields one needs to look beyond government insured deposit accounts and similar vehicles and consider corporate debt, foreign government debt, and municipal debt. While we hold LQD (investment grade corporate bond ETF), and HYG and JNK (high yield corporate bond ETFs) in many client accounts, I often buy municipal bond funds as a way to put uninvested cash to work.
The iShares National Municipal Bond ETF (NYSEARCA:MUB) is currently yielding 5.60% on a taxable equivalent basis (35% marginal tax rate – non-taxable yield is 3.64%) over three times the 1.71% average yield on 1 year CDs! If you are willing to endure even more risk, higher yields are available through leveraged closed-end muni bond funds. In the table below are 28 leveraged closed-end muni bond funds (1) with assets over $100M (2) that are all delivering taxable equivalent yields over 9% and (3) pay monthly dividends that (4) have been stable or increasing over the last 12 months and (5) trade at a discount to their net asset values (all data from www.cefconnect.com as of 10/8/09).