Let banks compete for your cash

Banks really, really, really want your money. And that's good news for savers in an otherwise dismal interest-rate environment.

"Banks are still very hungry for consumer deposits," said Greg McBride, a senior financial analyst for Bankrate.com. "They're keeping returns high relative to where they are in the rest of the economy."

You won't get the best rates leaving your money in a traditional big-name bank, however. As ever, scratching out decent yields means shopping sites such as MSN Money, Bankrate.com (for the best CD and savings rates) and Money-Rates.com (for rewards checking).

You'll find the biggest deals at small banks and credit unions. And you'll need to be willing to cope with some limitations. Among the best deals out there are rewards checking accounts, which have numerous restrictions for users but have picked up speed as banks' need for money has grown.

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Why savers are suddenly attractive

• Bad loans. Capital losses from bad mortgages and other loans mean many banks need to build up their reserves. To do that, they need your deposits.

• Scaredy-cat investors. Banks used to be able to sell most of the loans they made to investors and then use the proceeds to make more loans. With skyrocketing defaults, investors have gotten much pickier, making loan sales an expensive way to raise money. It's cheaper to get more deposits from savers and lend that money.

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Why cash is important
Banks are so eager to win and keep depositors, MSN Money's Jim Jubak says, that if you have a little green right now you’ll be able to negotiate a better rate on a CD or money market account.

The answer: probably. If your money is sitting in a traditional savings account, earning less than 1%, you're losing ground to inflation and taxes. Working to get a better return can help you preserve the purchasing power of your money, even if it won't make you rich. You might even get ahead a little, now that the inflation rate has dropped precipitously.

"You're better off earning 3% with 1% inflation," Bankrate's McBride said, "than you were earning 4% when inflation was 5%."

Continued: Yield isn't everything

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