Cash Matters
Prior to the Fed raising interest rates in 2022, cash was earning little yield no matter if it was in savings accounts, CDs, money markets, etc. With the current interest rate environment, there are now more options for your cash and greater variability in yields or return on your investment.
We all hold cash for a variety of reasons including an emergency fund, savings for specific goals, and more. While always chasing the highest yield may not be worth the time and hassle to most, ensuring you have a competitive return on cash is valuable as a 2-3% difference in yield will compound over time.
High-Yield Savings: These accounts are typically offered by smaller or online banks with some common names being Ally and Capital One. If name recognition is not important, there are higher yields available through other less known banks. Most often these are FDIC insured accounts. Current competitive yields range from 4.00-4.75% depending on the institution, but the yield is not guaranteed and will change.
Certificates of Deposit (CDs): With increased yields, there is now a greater benefit to utilizing a CD. It is important to shop around as banks may offer promotional rates. Your yield is locked in, and you can access the funds with a penalty if needed. These accounts are FDIC insured. Rates vary by maturity but 4.5% or greater is currently competitive for shorter maturities.
Money Market Funds: You may have access to these funds through your bank or your brokerage accounts. Depending on where your money market funds are, they are either FDIC or SIPC insured. Similar to high-yield savings, rates will vary over time and money market funds are very liquid. Current funds are yielding around 4.25-4.75%.
Each option has its own risk, benefits, and attributes to be considered for everyone’s individual needs, but the message is clear: if your current cash is not yielding 4%+, it is time to explore alternatives. No matter which option is best for you, be mindful of FDIC coverage and limits.
Our team at Bridge Financial Planning is here to help you with your alternatives for cash management as part of our financial planning and investment management services.
*This blog is published as of 4/10/2023. Actual rates available may differ from those available at the time of publishing.
