Where to safely park your cash

I said it was stupid to predict what the market would do in the next day. Apparently I was indeed stupid to do so the day before. Actually I was half correct to say that Bernake would not announce QE3 but the market was not really disappointed about that. Bernake said the extreme weak job market was a "grave concern", which was deciphered by the market as a sure signal that he will take action pretty soon to open the floodgates to print money.

Now today's topic. If you have spare cash, where would you like to park it? I guess most of people would say to put it in a saving account. In today's near zero interest days, you may be lucky to get 1% interest for your saved money, but you need to pay tax on the interest as income. If you are at the 35% tax rate bracket, what you really get is only about 0.65% on your money. I think there is a better way to park your money and this is what I'm doing.

There is a mutual fund called Near-Term Tax Free Fund (NEARX), which invests in municipal bonds with short-term maturities issued by state and local governments nationwide, including holdings e.g. from the City of Chicago, the Commonwealth of Puerto Rico, and the City of San Antonio Texas Water System Revenue. If you know MUNI (a nick name for  municipal bonds), you know they are quite safe, similar to the US treasury bond. That's why Morningstar rates NEARX  4-Star ratings overall in the 3-, 5-, and 10-year categories. Actually in over the past 10 years, this fund has always been positive in its annual performance, i.e. not losing money at any year, including the most dire year of 2008. I think you can basically consider NEARX as a bank CD or money market fund for its safety. The best feature of this fund is that it distribute tax free interest as indicated by its name. So don't laugh at its 1.03% yield. This is the tax-free income and if you pay 35% tax, it equals to about 1.77% interest you can get from a saving account. So for the money I'm putting at sideline for investing opportunities, I simply buy this fund while waiting to earn some tax-free money.