Interest Rates Have Increased - You Can Now Earn A Respectable Yield On Your Cash

A recent Bloomberg MLIV Pulse Survey indicated that investors believe cash could strengthen their investment performance over the next 12-months:

Even in tough environments, there will always be opportunities.

We should all be looking to get the most out of our money. Remember, your money should work for you, not the other way around.

The negativity you hear on a daily basis can cause you to become stagnant, not sure if you should make a move.

But we never want to do zero. Those who take action are rewarded.

If you have a lot of cash sitting in your checking/savings account, or on the sidelines waiting to ride out the stock market volatility, consider putting some cash to work get a respectable yield compared to what you are getting from the traditional banks.

Here are four ways you can earn a better yield on your cash:

• Open High-Yield Savings Account: Think of this account as an alternative to your generic savings account. The money in this account can be accessed at any point. The only difference from your savings is you are actually earning some interest!

Consider utilizing this account for emergencies or planned expenses in the next 12-months.

In January 2022, the interest rates on most high-yield savings accounts were around 0.50%. Now you can earn 3.75%.

I would assume your savings account is earning next to nothing.

For the visual learners:

The savings rates on these accounts can change at any time and typically track the Federal Reserve’s benchmark rates. But why not take advantage of these higher rates now?

• Treasury Bills: A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.

The length of these investments varies from 4-weeks to 52-weeks and can be a great way to earn some interest.

You do get a slight tax break as the interest income from T-bills is exempt from state and local income taxes. However, the interest income is subject to federal income tax.

Here are the current interest rates (as of 3/6/2023) that you can receive on Treasury Bills:

• Series I Savings Bonds: These exploded in popularity as inflation reached 9% during 2022. You buy these directly from the US Government and can purchase up to $10,000 per calendar year. Remember, you need to buy them on or before April 30th to get the 6.89% rate.

Three other things to keep in mind with I Bonds:

1.   Need to hold them for 1 year.

2.   Years 2-5, forfeit last 3-months of interest when you cash them in.

3.   Years 5-30, no penalty to cash out.

For more details, click here.

• Certificate of Deposits (CDs): A certificate of deposit (CD) typically earns a higher rate than a high-yield savings account because you are locking your money up for a specified amount of time. But these can be a great option for cash you may not need for 12-36 months. As of now, you could earn 5% on an 11-month CD.

If you cash in a CD prior to the maturity date, prepare to lose out on a significant amount of interest.

The one silver lining of higher interest rates is that it generates an opportunity for savers to earn a respectable yield on their cash.

These are some of the highest rates we’ve seen in over 15 years, consider taking advantage.

 

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

All investing includes risks, including fluctuating prices and loss of principal.

Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Series I bonds are guaranteed by the US government as to the timely payment of principal and interest and offer a fixed rate of return and fixed principal value. Minimum term of ownership applies. Early redemption penalties may apply.

CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.​

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.