Dear Dr. Don,
How do I find those 10% interest accounts that people talk about? Is that high yield real? I've looked through all the bank and credit union highest-yields reports, and I've yet to see one giving 10% returns. Is the stock market what they're talking about? Thank you.
-- Theo Time-Deposit

Dear Theo,
If something sounds too good to be true, it probably isn't true. A U.S. bank can currently borrow reserves at zero percent. So, banks don't need to pay depositors a high yield of 10% to attract deposits. In fact, the highest reported yield on a five-year CD on Bankrate is 1.85% at the time of writing.

Credit unions, online banks and what I like to call "specialty banks" tend to offer slightly higher yields than your local banker, but nowhere near 10% in today's interest rate environment. I think of banks such as Sallie Mae Bank, State Farm Bank and MetLife Bank as specialty banks. Deposits in these banks are insured by the Federal Deposit Insurance Corp., but banking isn't what comes to mind first when you hear these firms' names.

There's a relationship between risk and return. Investors expect to be compensated for taking on additional risk and require a higher expected yield on risky investments. Money sitting in an FDIC-insured savings account won't earn a risk premium. The stock market has higher expected returns than a bank deposit, but then you're taking on the risk that stock prices could fall, and you'd lose part of your principal.

Be careful when chasing high yield. Some investments promise a high level of return, but part of the payout to the investor is actually a return of the investor's capital. Real estate investment trusts, or REITs, and oil and gas royalty trusts are two types of investments that return capital to investors over time, along with paying a yield on the moneys invested.

Also, be careful what you wish for. We had six-month bank CDs with yields in the double digits in the late 1970s and early '80s, but that high yield was accompanied by inflation in the double digits for some of those years as well. Earning 10% on a CD doesn't count for much when inflation is running at 10%. You're just treading water.