Good news is hard to find in financial markets this year. But there is a glimmer of hope: Cash is worth something again. So if you’re still holding savings in a bank account with a 0.01% annual return, you’re missing out. Here are four things you can do with saving cash when interest rates are rising.
High yield savings accounts and money markets
Typically, brick-and-mortar banks offer little interest on cash deposits. Holding a large amount of cash in one of these accounts today means missing out on significant risk-free returns.
High-yield savings and money market accounts currently offer interest rates of between 2-3% annually. To find the best option for your cash, consider minimum accounts, existing banking relationships, monthly deposit/withdrawal limits, fees, FDIC insurance, and so on. Another caveat: Some institutions limit daily transfers to $10,000. Not ideal if you need to move a lot of cash. However, some banks offer higher daily limits, such as American Express
Very quick to set up and with many no-fee options, investors have few reasons not to increase their cash returns.
Treasury bills come in a few forms, with treasury bills and bills being among the most common. T-bills mature in a year or less and banknotes between two and ten years. As of September 30, 2022, the 1-year government bond yielded 4.05% compared to 4.22% for the 2-year government bond.
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When you buy a government bond and hold it to maturity, you get a guaranteed return. Returns (often called yields) are expressed annually. So in this example, a 2-year Treasury would return 4.22%. per year for two years. So if you’re wondering what to do with cash, treasuries can be a great way to generate returns with a treasury ladder.
You can always sell the treasure before it expires, but doing so could result in a loss. Interest rates and bond prices are inversely related. So if interest rates go up, your bond will be worth less (everyone else equal). As an added bonus, Treasuries are exempt from state tax.