Cross-posted from Putanumonit.

Some of you have read Get Rich Slowly and thought: no, this is not slow enough. The dizzying pace of 6-7% annual return is too much. You want more safety and less volatility, something towards the bottom-left corner of the efficient frontier.

Concrete example: you have $10,000 today, and you may want to spend them sometime in the next 2-3 years on a car, a mini-retirement, or just an emergency. You would like there to be more than $10,000 when you need the money, but what you really want is to be confident that there wouldn’t be any less than that. Emerging market stock index funds can turn $10,000 to $15,000 in two years, or to $6,000. You just want there to be $10,500.

This post will briefly cover the basics of low-risk-low-return saving, with general principles and particular examples. With apologies to my international readers, the examples are all USA-specific. The general approach, however, should be easily transferrable – and you’ll know what scams to watch out for.

“Risk-free” rate

The benchmark for the return rate on low-risk investments is the federal funds rate, which is currently set by the Federal Reserve at 2.5% ^[1]. This is the rate at which big institutional banks borrow dollars ^[2] from each other and from the central bank overnight. This number also tracks very closely the rate at which the US government borrows money for one year.

The chance of any bank going bankrupt overnight or the US government defaulting on its debt within 1 year are both very close to zero, which is why the federal funds rate is often referred to as the “risk-free rate of return”. Of course, nothing is ever truly risk-free when finance is concerned. “Risk-free” is a euphemism for “this won’t blow up unless the entire rest of the financial system blows up as well, and at that point, you should care about your stocks canned food more than about your dollar savings.”

So, big banks can borrow and lend “safely” at 2.5%. Let’s see what normal schlubs like us can get when we go to the big banks ourselves.

Checking and Savings Accounts

There are roughly 70,000 retail bank branches in the United States. A third of them belong to the biggest 5 retail banks: Wells Fargo, JP Morgan Chase, Bank of America, US Bank, and PNC. Either one would be happy to open you a checking account – a simple account where your money is insured by the government,

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