AKAMAI MONEY

By Deborah Adamson
Advertiser Staff Writer

Q. Where can you earn more interest on your money without taking on a lot more risk? Everyone who is retired is hurting. — James Osborne, Manoa.

A. That's a dilemma many senior citizens have faced.

Several financial institutions in Hawai'i pay less than 1 percent on savings accounts, short-term certificates of deposit and money market investments, squeezing retirees living on a set income.

"Someone who's living on a fixed income, they're taking a beating right now," said Michael Iraha, a certified financial planner in Honolulu.

There are ways to get a higher return without appreciably increasing your risk. Shop around for the best rates. Check small credit unions, banks or thrifts, because they tend to pay higher interest rates, Iraha said. A list of savings, money market and CD rates paid by Hawai'i financial institutions is published in the Advertiser's business section every Thursday.

As of Wednesday, Territorial Savings Bank had one of the highest rates among local institutions: Regular savings accounts pay an annual percentage yield of 1.61 percent.

A 6-month CD pays 1.51 percent and a 12-month CD offers 1.61 percent.

If you don't mind using an out-of-state institution, you can find the best national rates at www.bankrate.com. For one-year CDs, the best APY is offered by Corus Bank in Chi-cago, at 2.93 percent with a minimum $10,000 deposit. Providian National Bank of Tilton, N.H., is second at 2.9 percent for a $50,000 minimum deposit. Nexity Bank of Birmingham, Ala., pays 2.87 percent on a minimum deposit of $1,000.

Corus can be reached at 1-800-989-5101, Providian at 1-800-414-9692 and Nexity at 1-877-738-6391.

The national average for one-year CDs is 2.26 percent, according to Bankrate.com.

Greg McBride, senior financial analyst at Florida-based Bankrate.com, said you can open an account by mail, online or by phone. You can access your funds through checks provided by the bank, free money transfers to your local bank account or an ATM card.

McBride recommends not tying up your money for more than a year, since interest rates are rising.

Another possibility for retirees is Hawai'i municipal bonds, said Danny Alvarez, investment representative for Edward Jones in 'Aiea. Not only are they yielding 2.5 to 4.7 percent depending on maturity, they are free from state and federal taxes, he said. Yields take into account a bond's interest rate and price.

Hawai'i muni bonds — issued by state, county, school districts, hospitals and others — are insured against default. You can buy muni bonds through your broker or financial planner.

To minimize the impact of rising interest rates, try to stick to the shorter-term muni bonds, Iraha said.

But if you want to capture some of the higher-yielding bonds, which have longer maturities, you can ladder your bonds to minimize volatility, Alvarez said, splitting your money into bonds of different maturities. As one matures, put the money into bonds with other maturities.

For example, you can put a third of your money into short-term bonds, a third into intermediate-term and a third into long-term bonds, Alvarez said. As the short-term bond matures, put the money into one of the other two pots, whichever looks better and fits your needs at that time.

This ensures that all your money won't be stuck in a bond of one maturity, because something better might come along.

Alternatively, you could invest in a muni bond mutual fund such as Hawaiian Tax-Free Trust (HULAX), said Martin Arinaga, a certified financial planner with Chinen & Arinaga in Mililani. Since the fund is diversified, it provides a cushion against price volatility. For information, call 1-800-437-1020.

For short-term bond funds, consider PIMCO Low Duration (PTLAX), PIMCO Short-Term (PSHAX) or PIMCO Short-Duration Muni Income (PSDAX), Iraha said. Call PIMCO at 800-927-4648.

If you're a bit riskier, consider dividend-paying stocks, Alvarez said. Dividends, formerly taxed as ordinary income, have been capped at 15 percent under recent tax law changes.

Hawaiian Electric Industries pays 31 cents a share per quarter, or $1.24 a year, making its dividend yield 4.76 percent. Hawaiian Electric stock closed at $26.04 yesterday. Yield is calculated by dividing the annual dividend by the stock price.

Make sure the company is sound, so it can continue paying the dividend, and that its price is expected to appreciate. You also need to be able to hold the stock at least three years to ride out any short-term ups and downs, Alvarez said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.