By timestaff
October 25, 2012
In May of 1942, members of California's Mochida family wait for the bus that will take them to an internment camp while wearing tags so they will not be separated later.
Time & Life Pictures/Getty Images

Waiting for higher yields on savings? Don’t hold your breath.

The Federal Reserve said in September it would buy $40 billion of mortgage-backed securities a month until the labor market rebounds. The goal: to free up banks to lend more.

It’s the Fed’s third attempt since 2008 to use this tactic, called quantitative easing.

Targeting the 8%-plus jobless rate, QE3, as it’s known, is likely to hold down mortgage rates which in October hit a 60-year low of 3.36%.

The Fed also plans to keep short-term rates near zero through mid-2015, so get used to current savings yields (recently averaging 0.12%).

And if you’re looking to beef up bond fund income, Morningstar Investment Management economist Francisco Torralba suggests short-term corporates, which yield about 2% today. Though the risk of inflation is low, he says, a spike would hit higher-yielding long-term bonds harder.

Related: Should I invest in bonds or in a bond mutual fund?

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