New York CNN — The Federal Reserve has announced that it will keep its benchmark interest rate unchanged, maintaining the highest level in 22 years. This decision means that savers and people with surplus cash still have the opportunity to get a better return on their money than in previous years, and even outpace inflation.
According to a recent survey from Bankrate, the average annual percentage yield on bank savings accounts was just 0.56%. However, online banks that are FDIC-insured are offering much higher yields of over 5% on their high-yield savings accounts. These accounts are ideal for depositing money that will be used within the next two years for expenses such as vacations, big purchases, emergency expenses, or unexpected circumstances.
Certified financial planner Lazetta Rainey Braxton recommends using high-yield accounts to house money that will be used to pay off a purchase with a limited-time 0% financing deal. By keeping the money in a high-yield account, it can grow by 4% to 5% a year while the purchase remains interest-free.
For regular household bills, Braxton suggests keeping just enough cash in a regular checking account to cover a month or two. Linking a high-yield account to a checking account allows for easy transfer of funds when needed.
Money market deposit accounts and money market mutual funds are also options for higher yields. Money market accounts, offered by banks, provide quicker access to money while still potentially providing high yields. Money market mutual funds, although not FDIC insured, offer yields north of 5%, according to DepositAccounts.com founder Ken Tumin.
Certificates of deposit (CDs) are another low-risk investment for money that won’t be needed for a few months or years. Using a brokerage like Schwab, E*Trade, or Fidelity allows for comparison shopping and access to higher returns. Leaving the money invested for the fixed period specified in the CD will yield the greatest benefits.
Short-term Treasury bills and diversified funds of highly rated government and corporate bonds are also recommended for money that won’t be touched for several months to a few years. Treasury bills offer yields around 5.5% while corporate and municipal bonds offer yields nearly as high.
When choosing accounts and investments, it is important to consult with a fee-only fiduciary advisor to ensure the best options for personal goals and ease of access to cash. While it may be tempting to chase the highest yield, it is crucial to balance yield with accessibility and potential penalties for early withdrawal.
Overall, despite the Federal Reserve’s decision to keep interest rates unchanged, there are still many low-risk options available for savers and individuals with surplus cash to earn higher returns on their money.