In a world of persistent inflation, higher interest rates may be sticking around for a while longer. This is good news for cash savers who are looking for ways to earn returns on their money, as they now have the best opportunity to do so in the last 15 years. According to Greg McBride, the chief financial analyst at Bankrate, the prospective yields on investments like liquid savings or timed deposits, such as certificates of deposit, are currently well above inflation. McBride suggests that now is a good time to lock in these high rates by turning to CDs, Treasury bills, Treasury Inflation-Protected Securities (TIPs), or Series I bonds.
Series I bonds, a U.S. government savings bond aimed at providing protection against inflation, are currently offering a 4.28% return for the next six months. While this rate is down from a peak of 9.6%, it still provides an after-inflation return that is advantageous for savers. The 4.28% includes a 1.3% fixed-rate portion, which is a significant increase from the previous low of 0%. However, it’s important to note that many of these investments require savers to commit to a specified time period and may incur penalties for early withdrawal.
For those who prefer more flexibility when it comes to accessing their cash, online high-yield savings accounts offer an attractive alternative. These accounts typically have top annual percentage yields of 5% or more and provide easier access to funds compared to other investment options. Despite the benefits of these accounts, a recent survey by Bankrate revealed that 67% of Americans are earning interest rates below the threshold offered by high-yield savings accounts.
When deciding between locking in returns on cash or opting for a liquid savings account with a potentially better rate, it’s crucial to consider the timing of your financial goals. McBride emphasizes that the key factor to consider is when you will need the money. If you can afford to lock up your funds for an extended period, options like short-term CDs, long-term CDs, or Treasury notes may be beneficial. However, no one can predict where interest rates will go in the future, so diversifying your deposits across different accounts can help mitigate risk.
Regardless of the size of your savings, it’s crucial to ensure that your deposits are properly insured by either the Federal Deposit Insurance Corp. (FDIC) for banks or the National Credit Union Administration for credit unions. This added layer of protection provides peace of mind for savers, knowing that their money is secure.
The current environment of higher interest rates presents a unique opportunity for cash savers to earn better returns on their investments. By carefully considering their financial goals and exploring the various options available, savers can make informed decisions that align with their needs. Whether opting for higher-yield investments like CDs or Treasury securities, or choosing the flexibility of online savings accounts, savers can take advantage of the benefits offered by today’s interest rate landscape.