Title: With interest rates in flux, experts suggest locking in higher yields with CDs, T-bills, and money market funds
As interest rates remain in a state of uncertainty, financial experts are advising individuals to consider various options to lock in higher yields for their money.
One suggestion comes from Ken Tumin, founder and editor of DepositAccounts, who advises individuals to consider investing in a Certificate of Deposit (CD) with a maturity date in 2024. According to Tumin, one-year CDs are currently offering an average rate of above 5.5%, as of January 4. However, Tumin warned that these rates are expected to decrease as the Federal Reserve prepares for a rate cut.
One potential drawback of CDs is the early withdrawal penalty, which typically amounts to three months of interest. However, penalty-free CDs are available for those who may need access to their funds before the maturity date.
Another option highlighted by financial planner Patrick Lach is Treasury bills, or T-bills, which are backed by the U.S. government. T-bills offer terms ranging from one month to one year and can be purchased through TreasuryDirect or a brokerage account.
While T-bills offer high interest rates – with 1-month and 2-month T-bills yielding roughly 5.4% as of January 4 – they come with the trade-off of being less liquid than cash held in a savings account or a penalty-free CD. Furthermore, T-bills are not subject to state or local taxes, making them an attractive option for investors.
Seth Mullikin, founder of Lattice Financial, also suggested money market mutual funds as a viable option for cash. These funds, which invest in shorter-term, lower-credit-risk debt such as Treasury bills, are currently paying approximately 5.5% as of January 4.
However, Tumin cautioned that money market fund yields closely follow the actions of the Fed, meaning that they are expected to decrease once the Fed cuts rates.
In conclusion, as individuals weigh their options for where to keep their cash, it is important to consider the potential impact of fluctuating interest rates and weigh the pros and cons of various investment vehicles, such as CDs, T-bills, and money market funds.