Vehicles for short-term savings

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We've got a couple of kids in college and may have some large expenses within the next year, so we have a significant amount of money in cash for those purposes.

Right now, it's in a money market account, with 1.25% interest. (By the way, for longer-term investments, we have a variety in stocks, bonds, and other investments, so it isn't all invested in cash.) The money is in a credit union that is NCUA-protected.

I could tie up some of the money for a year (if CD rates were decent), but no longer than that. Are there any other suggestions on anything that will protect the investment yet will pay just a bit more? I was trying to think of ways I could pose as a 10-year-old for Joan of Arch's post on the institution that is offering 5% on kiddie accounts but wasn't clever enough to put that one off!

[bjl584]

We've got a couple of kids in college and may have some large expenses within the next year, so we have a significant amount of money in cash for those purposes.

Right now, it's in a money market account, with 1.25% interest. (By the way, for longer-term investments, we have a variety in stocks, bonds, and other investments, so it isn't all invested in cash.) The money is in a credit union that is NCUA-protected.

I could tie up some of the money for a year (if CD rates were decent), but no longer than that. Are there any other suggestions on anything that will protect the investment yet will pay just a bit more? I was trying to think of ways I could pose as a 10-year-old for Joan of Arch's post on the institution that is offering 5% on kiddie accounts but wasn't clever enough to put that one off!

Hartford has some mutual funds that are relatively safe and pay out a decent monthly dividend. I currently have some money in one that pays out about 4% annually. The principal only dropped about 2% the day the DOW tanked 600+ points. Riskier than a savings account but it may be something to look into.

[kork13]

A possible thought, only because I just looked at the I-Bond thread... I-Bonds could be an option. They're redeemable after 1 year, though you pay a 3-month interest penalty. Current rate is 4.6%, if the rate stayed similar after the next change in November and then again next May, you'd end up with a total return of 3.4%. It's sort of a guess/almost-gamble (as far as what the rate might be after Nov and next May), but the principle and interest are guaranteed to be safe. Run some worst-case scenarios... it might be worth considering.

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Thanks very much for the suggestions.