For the past decade, it has been incredibly difficult for savers to earn much on cash savings. That has changed as the Federal Reserve raised interest rates to battle inflation. As a result, yields on various cash vehicles are more advantageous.
High-Yield Savings Accounts
High-yield savings accounts, popular with online banking institutions, typically offer higher interest rates than traditional banks while still providing FDIC insurance coverage.
Unlike checking accounts, these accounts generally do not have minimum deposit or balance requirements. In today’s environment, where interest rates at your typical bank are still near zero, it is possible to find high-yield savings accounts yielding over 4%.
Don’t want to close an existing checking account with established auto payments and direct deposits? A high-yield savings account can be opened at a separate banking institution and connected to an existing checking account so cash can be electronically transferred back and forth seamlessly.
Be sure to check whether the high-yield savings account limits the number of monthly transfers. If frequent transfers from the high-yield savings to the checking account are anticipated, make sure the account doesn’t have a low monthly cap.
Brokerage Money Market Accounts
Investors with brokerage investment accounts at large custodians like Charles Schwab, Fidelity, Vanguard, etc., can invest cash in money market funds. Unlike bank accounts, these funds are generally not FDIC-insured.
However, established custodians have a long track record of running these funds over various market cycles. Many of these money market funds yield around 5%. Similar to high-yield savings accounts, yields generally increase as interest rates increase.
Ultra-Short Duration Bond Funds
Another option is an ultra-short duration bond fund to earn additional yield. Bond funds do not offer FDIC insurance, and the value can fluctuate. While these funds may work for those seeking higher yields who can stomach short-term volatility, it is important to talk to your investment advisor before purchasing one because these funds vary greatly in the amount of risk taken and yield earned.
Summary
Make sure you’re taking advantage of the various options for your cash to earn more interest! Contact your financial advisor to learn more about these possible solutions.
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Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place
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