High interest rates get a bad rap. Sure, it’s tough when you are the borrower, like when you buy a home or car, but it is pretty nice when you are the lender, like when you deposit in a bank or buy bonds. Right now is a great time to be a lender, and that includes those of us who are risk-averse investors and/or who like to maintain an emergency fund for unexpected expenses.
The main criteria for these savings vehicles would be liquidity (easy access to the cash if needed) and safety (either insured by FDIC or SIPC or backed by the U.S. government). With that said, here’s the three best places to park your cash, in no particular order:
- Savings and Money Market Accounts – These are the savings accounts at your local bank as well as the money market accounts that banks offer. These are the most liquid of the accounts mentioned here so you would want to put any cash that you would need in a few days or less in one of these accounts. Be sure to check that they are FDIC insured. Currently, I can find rates as high as 5.15% with a minimum balance of $5,000 and 5.0% with no minimum balance.
- U.S. Government Treasury Bills – These are issued by the U.S. with maturities of 1 year or less. You can buy these direct at treasurydirect.gov or with your brokerage account. You can buy and sell these quickly and easily. Six-month T-bills are yielding over 5.2% at this time. These yields change frequently throughout the day but rarely more than 20 basis points, 0.20%.
- Certificates of Deposits (CDs) – With CDs, you lose a little liquidity so I would only buy CDs with a maximum maturity of six months. You can also put smaller amounts in several CDs with differing maturities, aka a CD ladder. Right now, some banks are offering six-month CDs at 5.4%.
If you don’t work with an investment advisor, you can do an internet search to find the best rates. One site that I like to use is bankrate.com but there are several others. Also, keep in mind that the rate you see is the annualized rate. So, if you buy a six-month CD or T-bill that pays 5% APY, you are only going to receive 2.5% on your investment for those six months.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
Thanks Joe Baker. I’m learning. Theresa Smith From 59 Dunbar Street
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