During the pandemic, interest rates dropped to near 0% and the question of “where should I keep my cash / savings?” was less relevant. Since 2022, the Federal Reserve has raised interest rates to a level that warrants revisiting where your cash / savings reside as you plan your finances. 

Determining where you store your money could mean the difference between accruing pennies to thousands in interest!

While your checking and savings accounts offer easy access to your money to cover your expenses and debts, these tools do not offer competitive interest. 

Let’s break down a few reliable cash management tools that offer higher annual percentage yield (APY) – interest – than your brick and mortar bank.

High-Yield Savings Account 

High-yield savings accounts are the ideal place to hold your emergency savings while earning a higher interest rate (3.90% as of 04/03/2023)  compared to what you’d earn through traditional savings accounts (0.01%). You can also continue to make contributions to the account regularly to grow your balance.

The interest rate you receive can change at any time since rates fluctuate in accordance with changes to the Federal Reserve’s benchmark interest rate. 

The best part is that you can access your cash whenever you need to. Keep in mind that some accounts may have excessive withdrawal fees or place  limits on how many withdrawals you can make.

Providers to consider – Marcus by Goldman Sachs, Ally, or Capital One

Certificates of Deposits – CD

A CD is a deposit account that usually pays a fixed APY in exchange for locking up your money for a set period of time (terms typically range from three months to 10 years). The longer the time period, the higher the interest rate. 

CD rates are higher than they have been in years at 4-5% APY (as of 04/03/2023). It is important to remember that CDs tend to have a minimum balance requirement to open an account and you cannot add money after your initial deposit. 

However, CDs do have penalties if you want to withdraw your money before the end of the term. For example if you purchased a 3 year CD and you needed to access the money after year one, you will have to pay a penalty to receive your funds. Since your money is not easily accessible like a high yield savings account, you should consider this as a tool for excess savings, not intended for emergencies or retirement. 

You can open CDs simply at traditional banks, credit unions, or online banks like Marcus by Goldman Sachs or Ally.

I Bonds

I bonds earn interest based on both a fixed rate and a rate that is set twice a year based on inflation. The bond earns interest at an adjustable rate until it reaches 30 years or until the holder cashes it in, whichever comes first. The interest income from I bonds is also exempt from state and local taxes. 

I bonds are currently offered at 6.89% until 04/30. Afterwards, a new interest rate will be set, which is expected to be below 4%. Keep in mind that each individual can only purchase up to $10,000 in I bonds each year. You cannot cash out an I bond before holding it for at least a year. To reap the full benefits, you must hold the bond for at least 5 years – if you hold it for less than 5 years, the last three months of interest will be forfeited 🙁. You should consider adding money to this type of account for longer term investment goals.

To purchase I bonds, you must purchase directly from the government on the TreasuryDirect website.

Treasury Bills – T-bills

Treasury bills are another way to grow your savings by offering a fixed return over a specified period of time. Terms can be as short as a few days and as long as 52 weeks (one year). 

The nice part is that you can purchase T-bills for as little as $100 and receive a roughly 5% APY for a 3 month or 6 month term. Similar to I bonds, the interest is exempt from state and local taxes. T-bills can be an attractive place to put excess savings with shorter terms than CDs or I bonds. You can also invest T-bills in your brokerage account as a strategy to gain interest on the cash in your investment account.

T-bills are purchased directly from the Treasurydirect website or through a broker like Charles Schwab.

Ultimately, deciding between each of these vehicles is a personal financial decision. Do your research to understand what your options are and schedule a call with a member of our team to determine what makes the most sense for you.