We should all have some very liquid assets (cash-like investments) to pay bills and to allow us to pay for life’s inevitable surprises (auto work, appliance repairs, etc.). Often we keep these funds in a checking or a savings account. This is absolutely the right approach for money that we know we’ll need in the short term, but how about your rainy-day fund (6-12 month reserve for emergencies such as job loss)? This money should be working harder than the still woefully low returns that checking and savings accounts offer.
For most of us, there are three options: money market accounts, CDs or online savings accounts. As a review, money market accounts offer a higher rate of return than checking/saving accounts. You can withdraw money without penalty as needed (with a few rules as to how many times per month, etc.). The return can depend upon the size of the deposit. CD rates are higher than money market rates, but they tie up your money for a specified period of time (typically 3 months to several years). Online savings accounts can offer higher rates because they don’t have the brick-and-mortar overhead that a local bank has. All three of these investment options should be FDIC insured.
To get specific, I checked a few local banks today and the savings account rates were still 0.1% or less. Online savings rates were more like 2%. Money market rates ranged from about 0.5% to about 2%. CD rates varied from about 0.5% for a 3-month certificate to about 3% for a 5-year certificate. Since these funds are meant to be cash-like assets, they should be in short-term investments. This means 1-year or less for CDs. An additional benefit of shorter-term CDs is that interest rates are now rising so future returns will probably be higher.
Rates are constantly changing and generally increasing at this time so these investments warrant initial research and regular monitoring. If you’d like to talk about the best way to invest your short-term cash or have other financial questions, we’d be happy to talk with you in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.