Weekly and monthly-reset auction rate securities are generating tremendous opportunity even as banks lower CD and savings rates. The yields on these securities spiked close to 6% and has now come down to 5.7%. As long as these securities are yielding such great rates, there is no real reason to consider any other cash equivalent. The tax free alternatives (variable rate demand notes) are also very, very attractive.
The truth is that these are benefiting from underlying concern in the market about what the collateral is behind these securities and about the issuers. I suggest that you therefore focus on those that are issued by transport agencies and by utilities. While you may give up a few ticks, you will sleep better at night with these.
Another truism is that nothing last forever. These yields can always disappear at the next reset. If the credit market normalizes, this opportunity will disappear quickly. Therefore, CDs and bonds should still make up part of your portfolio in a declining interest rate environment.
However, while this opportunity exists it offers much more attractive yields and less risk that a savings account with Countrywide.