For years, consumers who managed to save a little money had few places to put it. Banks paid next to nothing in interest because of the Federal Reserve’s 0% rate policy.
But if you have managed to squirrel away some cash lately there may be some places to put it other than the stock market, which can move sharply up or down based on the latest remarks from Fed Chairman Jerome Powell.
For the last few years – especially since 2020 – the market mantra has been “cash is trash.” No longer.
Matt Frankel is a certified financial planner (CFP) and contributing analyst at The Motley Fool. Frankel says cash is a lot more attractive as a place to put money but only if savers take advantage of the rising interest rate environment and look in the right places.
“You can find high-yield savings accounts that pay 4% APY or more right now, but many major branch-based banks pay just a small fraction of that,” Frankel told ConsumerAffairs. “If you prefer to keep cash on the sidelines as the market turbulence plays out, it can certainly be a good idea, but make sure you put your cash to work for you.”
Rachel Christian, senior writer at The Penny Hoarder, says keeping money in cash can be attractive, especially for risk-averse investors.
Good for high-risk investors
“Online banks are offering upwards of 4% APY and higher, while six-month Treasury bills are fetching a yield north of 5%,” Christian told us. “That’s crazy high compared to just a year or two ago. Those investments are likely to continue offering attractive returns. The Fed hasn’t indicated it plans to cut interest rates, and it will likely increase them over the next six months.”
That suggests that the current rates could go even higher. For that reason, both Frankel and Christian advise against dumping all of your cash into one bond or CD all at once.
“First and foremost, if interest rates rise later, your money will be earning a below-market return, plus if you have bond investments, their resale value will almost certainly decline if rates rise,” Frankel said.
As an example, Frankel says if you have $10,000, instead of putting it all in a 5-year CD, you might put $2,000 in a 1-year CD, $2,000 in a 2-year CD, and so on – creating an “investment ladder.”
“The idea is that if you need your money, some will come available every year,” he said. “And if you don’t you can reinvest it at the then-current 5-year CD yields.”
Even with higher interest rates, Christian says it’s never a good idea to put all your money in a single asset, even a relatively safe investment like bonds or CDs.
Before making any major investment decision, it’s always a good idea to consult a trusted and objective financial adviser.