5 places to store cash
March 29, 2023
Are you building an emergency fund, saving for a car or home down payment, or preparing for retirement and want to know where to keep your short-term cash? Here are five options to consider, depending on your frame.
If you want to keep your funds fully liquid, consider a High Yield Savings Account, Money Market Account, or Money Market Mutual Fund.
high yield savings account
This type of savings account offers higher deposit interest rates than your local bank. Most offer easy online access, and few have physical bank locations or ATMs. Bank-to-bank transfers are easy to set up, but can typically take 24-48 hours.you can visit bankrate.com To check current yields on many FDIC Insurance High Yield Savings Accounts. Current rates are between 3.75% and 4.30%. Please note that these rates fluctuate and are not guaranteed.
money market mutual fund
A money market fund is an investment product that allows consumers to earn interest in a lower risk environment than the stock market. These funds hold a “basket” of securities that generate the gains and losses investors experience as shareholders. Money market funds typically hold securities such as US Treasuries, corporate bonds, and other short-term, low-risk investments. As money market funds are investment products, they can lose money, but this is less common with money market funds. To offset this risk, be sure to get one that primarily invests in the treasury. Money market funds typically earn slightly higher interest than money market or savings accounts. Finally, money market funds have a management fee, also called an expense ratio. These fees are expressed as a percentage and are deducted from your earnings. As an example, the VMFXX – Vanguard Federal Money Market Fund has a 7-day SEC yield of 4.72% and an expense ratio of 0.11%. The net yield will be 4.61%.
money market account
By comparison, a money market account is an interest-bearing account that you can open with a bank or credit union. Very similar to a savings account, but requires a larger deposit (such as $25,000) and may have fees. Deposits are insured by the FDIC and accounts are usually accompanied by a check or ATM card.
Certificate of Deposit (CD)
If you’ve already funded your emergency savings and want to siphon off the extra money, consider a Certificate of Deposit (aka CD). A CD is a deposit placed with a bank or credit union that provides a lump sum of fixed interest over a period of time (months to years). You must keep the money locked for the agreed time frame. If you don’t, you will be penalized. Interest on a CD is taxed 100% state and federal in the year the CD matures. You can also purchase brokerage CDs from your Vanguard, Fidelity, Schwab, or other brokerage accounts.you can visit bankrate.com Check out the CDs currently offered by your online bank, or buy them from your brokerage account.is here video About purchasing a mediation CD which is very helpful. CDs are a good option for saving money that you won’t need for a while. Current yields on Vanguard’s site at the time of this writing range from 5% to 5.45%.
Series I savings bonds (also known as “I bonds”) are U.S. Treasury Department It has an interest rate linked to inflation. The compound interest rate is adjusted every six months (May 1st and November 1st) for I-bonds issued for the next six months. Their current annual compound interest rate is 6.89% through April 2023. March inflation data is due to be released on April 12th and this is the last number needed to determine the I-Bond inflation adjustment. No one knows what will happen on May 1st.st, as inflation falls, the I Bond compound rate may fall in the future. I Bonds still has some great features (no state income tax, deferred federal tax, college fund tax free) but you have to hold the bond for a minimum of 12 months and if you want to cash has an interest penalty of 3 months before 5 years. If you’re looking for a savings vehicle with the highest fixed rate, CD’s are a good idea to consider.
For more information on the characteristics of I Bonds, read Cynthia’s article “Should I Buy an I Bond” or Treasury Direct website.
Please consult your financial advisor to determine which is right for your unique situation.