By Jeff Brown
When the Federal Open Market Committee wrapped up its regular meeting Wednesday, the news was pretty dull. As expected, the Federal Reserve said it will keep interest rates at rock bottom, as it’s been doing for months.

Despite the ho-hum feel, the Fed’s rate policy is a key factor if you’re deciding how much money to put into different types of interest-paying investments. The low-rate policy makes government and corporate bonds look pretty risky next to certificates of deposit and other “cash” holdings.

The five-year U.S. Treasury note, for example, yields a measly 2 percent, while a five-year CD pays 2.28 percent, according to the BankingMyWay.com survey. Put $10,000 into the 2 percent Treasury and you’ll earn $200 a year, versus $228 in the CD.

Not only is the CD more generous, it’s safer, because the federal government guarantees you will get back every cent you invest.

That’s not so with Treasuries, or with corporate or municipal bonds. They all are subject to “interest rate risk,” which means their values can fall if prevailing interest rates rise.

That’s because no one will pay full price for your stingy 2 percent Treasury if newer ones pay 3 percent. If you bought that five-year bond today and prevailing rates rose immediately, the bond price would drop to $9,539, an immediate 4.6 percent loss. It would take more than two years for interest earnings to get you back to $10,000. In that time you could make around $500 on the CD.

The damage is worse for bonds with longer terms, since investors would suffer longer with sub-standard yields. Pay $10,000 for a 10-year, 2 percent bond, and the price would fall to $9,142 if rates quickly jumped to 3 percent. It would take more than four years for interest earnings to make up for that 8.6 percent loss.

Of course, it works the opposite way, too, with falling rates driving bond prices up. But rates are so low right that it’s hard to imagine them getting much lower.

If you’re shopping for bonds, or for mutual funds that own bonds, look for a “duration” figure. A one-year duration means a bond’s price will fall by 1 percent if yields rise by 1 percent. A five-year duration means the price would fall by 5 percent if rates rise 1 percent. The market-data firm Morningstar Inc. (Stock Quote: MORN) has duration data in its bond-fund reports.

There are two easy ways to reduce or eliminate interest rate risk. First, get bonds with short maturities, because they suffer less from rising rates. Second, buy bonds with the intention of holding them to maturity, when the issuer will pay you the full face value. Unfortunately, that could mean tying your money up for a long time in a bond that’s performing poorly.

On balance, CDs look better than bonds right now. You won’t get rich, but you won’t lose money, either.

If you have a sizeable sum, think about a laddering strategy, getting CDs with a variety of maturities to maximize yields on some money while keeping other funds accessible. Use the CD Ladder Calculator to devise a strategy.

It also makes sense to look into CD’s that have little or no penalty for early withdrawals. You may have to settle for a slightly lower yield, but you’ll be able to switch your money to better-paying CDs if rates go up.

Bank of America (Stock Quote: BAC) has a nine-month “Risk Free CD” yielding 1.39 percent and allowing penalty-free withdrawals after six days. Use the BankingMyWay.com shopping tool to hunt down other great CDs.

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