Where experts are putting their money right now
With interest rates up, here’s how the pros are maximizing their savings.
With interest rates up, here’s how the pros are maximizing their savings.
With interest rates up, here’s how the pros are maximizing their savings.
Jean Folger is a freelance writer and editor with a knack for tackling complex subjects using simple language. She’s passionate about helping people make better financial choices so they have more money and time to spend on the things that matter most. In her 15+ years as a freelance writer and editor, she’s specialized in real estate, retirement, investing, and other personal finance topics. Jean has written extensively for SFGate, Business Insider, The Motley Fool, Opendoor, Prudential, Investopedia, and more. She co-founded PowerZone Trading, which has provided award-winning software, consulting, and strategy development services to active traders and investors since 2004. Jean graduated with a bachelor's degree from Ohio University. Previously, Jean was a licensed real estate broker, an English teacher, and an adventure travel trip leader. And, she’s also the proud parent of a Team USA Olympic athlete.
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If you have cash sitting around earning nothing (or next to nothing), you're not alone. According to a recent Bankrate survey, just 22% of savers in the U.S. earn a competitive rate of 3% or higher. Nearly a quarter (24%) have APYs between 1% and 2.99%, and another 24% make less than 1%. One in six savers (16%) earn no interest at all.
That's a lot of money left on the table, especially when rates are up (thanks to the Federal Reserve's rate-hiking campaign). The good news is that you can join the 7% of savers earning APYs of 4% and above. Here are seven options experts recommend for putting your money to work in 2023.
1. Traditional savings accounts
Good for people who make frequent cash deposits or prefer in-person banking.
Traditional savings accounts are the standard accounts brick-and-mortar banks and credit unions offer. While the interest rates are low compared to other savings options (and the fees may be higher), you can deposit cash, get in-person help, and access your money at your local branch or ATM. Interest rates vary from bank to bank — even in the same neighborhood — so it pays to shop around.
TIP: Checking, savings, CDs, and money market accounts held at FDIC-member banks and NCUA-member credit unions are insured up to $250,000 per depositor, per account ownership category.
2. High-yield savings accounts
Good for people who are comfortable banking online and want competitive rates and low fees.
High-yield savings accounts are available at online banks and credit unions. Due in part to lower overhead costs, online banks can offer higher interest rates, lower fees, and lower minimum deposit requirements than their traditional counterparts. Still, online banks have limited (if any) branch options, so depositing cash or getting in-person support can be tricky. Compare options from at least three banks to find the best rates.
3. Money market accounts
Good for people who want to earn interest and have flexible access to their cash.
Traditional and online banks and credit unions offer money market accounts, which combine some of the best savings and checking account features: competitive interest rates and the option to write checks, use an ATM card, and make purchases with a debit card. Money markets usually have higher account minimums than savings accounts, and accounts with higher balances typically get the best interest rates.
4. Certificates of deposit (CDs)
Good for people who want to lock in a competitive rate on cash they don't need right away.
CDs are time deposits that traditional and online banks and credit unions offer (online banks offer the best rates). You make a single deposit and earn interest until the CD matures — anywhere from several months to several years. You can withdraw your balance at maturity or roll it into a new CD at the then-current rate. CDs are best for cash you won't need immediately: Early withdrawals trigger penalties, which can be substantial depending on the bank.
5. Treasury bills
Good for people who want a short-term investment with favorable tax treatment on earnings.
Treasury bills (aka "T-bills") are short-term debt securities issued by the U.S. Department of the Treasury and backed by the full faith and credit of the United States. You can buy T-bills from TreasuryDirect.gov (the official electronic marketplace for Treasury securities) or through your bank or broker. T-bills are issued for 4, 8, 13, 17, 26, or 52 weeks. When they mature, you get back your investment plus the discounted rate as your return. Unlike many savings options, your earnings are exempt from state and local income taxes, which can be attractive if you live in a high-tax state.
6. Treasury Inflation-Protected Securities (TIPS)
Good for people who want a low-risk way to protect their portfolios against inflation.
TIPS are another investment backed by the full faith and credit of the U.S. They pay a fixed interest rate twice per year until they mature in five, 10, or 30 years. Unlike other Treasurys, the principal can go up or down over its term. At maturity, you get an increased amount if the principal is higher (than the original amount) — or the original amount if the principal is equal to or lower. Like T-Bills, you can buy TIPS through TreasuryDirect or your brokerage account.
7. Money market mutual funds
Good for people who want a relatively low-risk alternative to investing in the stock market.
A money market fund is a mutual fund that invests in short-term, high-quality, interest-paying debt securities. Money market funds don't have the same earnings potential as stocks and bonds. However, they're popular among investors who want a relatively safe place to park cash when the stock market is volatile (or they're concerned about keeping money in the bank). Money market fund earnings may be taxable or tax-exempt, depending on the securities the fund invests in.
Bottom line
The Federal Reserve has raised the Federal Funds Rate (the overnight rate at which banks lend each other money) 10 consecutive times since launching its rate-hiking campaign early last year. While higher interest rates make borrowing more expensive, they provide opportunities for savers who can take advantage of the best rates in years. Of course, you can only benefit from high-interest rates if you park your cash in the right place. Compare offers to find the best rates and terms to ensure you get the most out of your money.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
