It’s been a LONG TIME since investors had an option to earn interest on cash! What should you do? It’s time to put your cold hard cash to work.
How did we get here?
Economists will rewrite textbooks for the fiscal and monetary policy events over the past 30 months. For example, if we think about 2022, the Fed met five times this year, increasing the Federal Funds Rate from 0% to 0.25% to 3% to 3.25% as of September 2022 to tame inflation.
While the speed and size of these hikes have been challenging for the equity and fixed income markets, they leave investors with numerous options for their cash.
Depending on your cash needs, we listed a handful of options for account types, interest rates, and other items to consider. We saved one of the best recommendations for last 😉.
Let’s start here:
- How much do you need on hand to sleep at night?
- Do you have liquidity needs in the next 12 months?
The answers to these questions will help determine how much you have to devote to one of the account types below.
High Yield Savings Accounts
- Where to Access
- Online with institutions like CapitalOne 360 and Ally
- Current rates
- Anticipate 2% to 2.4%
- Rate changes correlate with the Fed Funds Rate
- Considerations
- Some institutions require an account minimum
- Most accounts offer $250K of FDIC coverage per individual
- Access to the funds takes 2 to 3 business days
Money Market Funds
- Where to Access
- Most banks & other financial institutions
- Current rates
- Anticipate 2% to 2.75%
- Considerations
- Account minimums are typically higher than savings accounts
- Most accounts offer $250K of FDIC coverage per individual
- Limited check-writing capabilities
CDs (Certificates of Deposit)
- Where to Access
- Most banks & other financial institutions (i.e., traditional brokerage firms)
- Current rates
- Anticipate 2% to 3.5% depending on the maturity of the CD
- Considerations
- Institutions require an account minimum.
- Most accounts offer $250K of FDIC coverage per individual.
- Maturities vary from 6 months to 5 years, and penalties exist for early withdrawal.
Treasury Bills & Notes
- Where to Access
- You can purchase these directly from the Treasury via auction or at most financial institutions in the form of individual bills/notes or via an ETF or mutual fund product.
- Current rates
- Treasury Notes have maturities of 2, 3, 5, 7 & 10 years; rates vary.
- Treasury Bills have maturities of 4-week, 8-week, 13-week, 26-week & 52-week increments; rates vary.
- Longer-term durations typically pay more, but that isn’t the case currently with the inversion of the yield curve.
- Rates correlate with the Fed Funds Rate as well as the supply/demand of the notes.
- Considerations
- ETFs and mutual fund products are convenient as they ladder the bonds for you. However, be mindful of the internal expense ratio of these products.
- Check out additional information from the Treasury’s website (Treasury Bills and Treasury Notes).
Series I-Bonds
- Where to Access
- These must be purchased directly from the Treasury.
- Current rates
- Rates reset every six months and compound semi-annually.
- The rate is a combination of a nominal fixed rate + a variable inflation rate based on CPI.
- For example, I Bonds purchased through October 2022 lock in a rate of 9.62% for six months.
- Rates reset in November and May for the following 6-month period.
- Considerations
- Individuals can purchase a maximum of $10K each calendar year.
- Maturity is 30 years, but you can cash them in before then.
- You can cash them in after one year, but if redeemed before five years, you lose the previous three months of interest.
- Interest income is tax-exempt at the state level.
Ready to put your cold hard cash to work? If you have any questions, don’t hesitate to contact us today.
All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services.