High Yield Savings Accounts, Treasury Bills, Money Market Funds & CDs – Here’s How To Earn Up To 4.5% With Your Money – Latest News Update

Cash isn’t just the dollar bills you put in your pocket – in this market it may seem like a piece of solid ground.

There are several options: people can put their money in high-yield savings accounts, checking accounts, money market funds, certificates of deposit, and short-term Treasury debt.

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As a super-safe alternative to stock markets, these investment vehicles are positioned to generate higher returns from higher interest rates. They may sound like comforting places to park money as recession worries linger and as stocks and bonds try to recover from the 2022 boom.

High-yield online savings accounts are averaging 3.3% annual percentage returns (APY), up from less than 0.5% a year earlier, according to A one-year online CD has an average APY of 4.4%, compared to nearly 0.6% a year ago, the site said.

The average seven-day yield for the 100 largest money market funds stands at 4.34% and has not been this high in more than a decade, according to Crane Data, which tracks the industry. With maturities of less than a year, Treasury bills fetch yields at or above 4.5%.

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Of course, those numbers are no higher than inflation. Annual inflation in December was 6.5%, down from a record high of 9.1% in June 2022 during the pandemic era.

But consider these cash returns compared to stock market performance. Despite the strong start to January, the Dow Jones Industrial Average is down more than 4% year over year. In that time, the S&P 500 lost 9% and the Nasdaq Composite lost nearly 17%.

A major part of the downward pressure was the Federal Reserve’s rapid hike in its benchmark interest rate. The Fed last week raised its policy rate by 25 basis points, a quarter of a percentage point, and Chairman Jerome Powell has said more hikes are needed to help break inflation.

“There is more curiosity about cash,” said Meagan Dow, senior strategist for Client Needs Research at Edward Jones. “Each time we see market volatility and investments start to seem less certain, cash starts to feel more comfortable and safer as a place to put your money.”

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Financial advisor Ryan Greiser said he was surprised at how much unused customer money was waiting for more productive use. He doesn’t cut the stock and bond allocation, but he puts the extra money in short-dated CDs and Treasury bills. “Cash is the cool kid on the block right now,” says Greiser, a certified financial planner at Opulus, based in Doylestown, Pennsylvania.

Financial planner Ryan Greiser said he was surprised at how much unused customer money was waiting for more productive use.

Take it from Ray Dalio. “Cash used to be junk,” the founder of massive hedge fund Bridgewater Associates said in an interview with CNBC last week. “It is attractive relative to bonds. It’s actually attractive relative to stocks.”

John Boyd, founder of MDRN Wealth in Scottsdale, Arizona, disagrees. Cash is not waste to him. It’s a trap.”

“One of the biggest mistakes I see investors making right now is leaving depreciated stocks and bond funds to take advantage of higher returns in [high-yield savings accounts]money market funds and even short-dated CDs,” he said.

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Take advantage of the higher rates on rainy-day funds and reserves, Boyd said — just don’t go overboard. Cash still doesn’t have “double-digit growth potential like stocks,” Boyd added.

There are four reasons for holding cash as a liquid asset, Dow said. It’s for day-to-day expenses, emergency savings, a big upcoming expense like a down payment on a house, and for part of an investment portfolio.

Dow said Edward Jones generally recommends having no more than 5% cash in an investment portfolio, Dow said. “You don’t want too little, but you don’t want too much either,” she said.

A “cash management plan” is an important part of financial and investment planning, says Rob Williams, director of financial planning, retirement income and wealth management at the Schwab Center for Financial Research, a division of Charles Schwab & Co.

It is common for financial experts to describe cash investments as a spectrum of choices where there is a trade-off between return and liquidity.

That said, here are places to park your extra cash: Checking and savings accounts

Some checking accounts carry more interest than conventional checking accounts. But there are caveats, explains Ken Tumin, senior industry analyst at LendingTree and founder of

Many high-yield checking accounts require a minimum number of transactions for the APY to kick in, usually between 8 and 20, he said. There are often cash limits on high APYs, usually between $10,000 and $25,000, he added. So if you want to park money above those limits, it won’t pay the same amount of interest as a high-yield savings account, he noted.

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“In many cases, the rate advantage for high-yield checks over high-yield savings accounts may not be worth it,” he said. But the rate advantage between savings accounts at “physical” banks and online banks is remarkable, he said.

Tumin cited FDIC data showing that the national average rate for savings accounts was 0.33% through mid-January. Without the overhead of brick-and-mortar competitors, Tumin said online banks offer up to 4.20% interest on some savings accounts as they look to get an edge over competitors.

Brokers also offer “sweeping” services, where uninvested money is swept up and interest earned while it sits for the next trade.

For example, Robinhood is swiping uninvested money from eligible customers into a deposit account at a network of banks, with an APY of 4.15% as of early February. Fidelity Investments automatically puts the money into money market funds that delivered 4.14% seven-day returns in early February, a spokeswoman noted.

At Interactive Brokers, unused cash balances in excess of $10,000 can remain in an account and accrue interest. The formula is based on the federal funds rate minus 50 basis points, said Steve Sanders, executive vice-price of marketing and product development. For now, that is a rate of 4.08%.

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Money Market Funds

Money market funds take a middle ground, Williams said. Yields can be higher than savings accounts, though it usually takes a day to buy back your holdings, he noted.

These mutual funds consist of ingredients such as short-term, high-quality federal government and municipal debt, along with high-quality corporate debt that matures quickly.

At the end of last year, money market funds had $5.2 trillion in assets under management, according to the Treasury Department’s Office of Financial Research. That’s far more than the fund’s $4 trillion in assets under management by February 2020, the data shows.

According to Peter Crane, president of Crane Data, it will take a few weeks for the latest 25 basis point increase to be fully reflected in the average yield.

The last time the largest money market funds achieved an average seven-day return of more than 4% was in December 2007, according to Crane Data statistics. “Their greatest weakness is now their greatest strength. They follow the Fed,” Crane told MarketWatch.

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As the dispersion in returns from many savings accounts and money market funds widens, consumers would do well to pay more attention to these vehicles, said Kyle Simmons, founder and chief financial advisor at Simmons Investment Management in the Denver area.

Ultra-short-dated ETFs are another option, he added. Like money market funds, they provide exposure to government bonds and high-quality corporate debt that mature quickly.

But don’t confuse money market funds with money market accounts. The two are completely different, Tumin said. A bank’s money market account is similar to a savings account, he noted. CDs and treasury bills

Treasury bills and CDs are at the other end of the cash spectrum. They have a duration of 4 to 52 weeks. Yields can be higher than money market funds, but you have to wait longer to get your money back.

According to data from the Fed, the market yield on a month Treasury bill is currently over 4.6%. The last time, on a rolling basis, yields exceeded 4% for one-month T-bills was in October 2007, according to data from the St. Louis Fed.

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Investors can purchase government bonds of various lengths through their broker or on (TreasuryDirect is also the place to buy popular I-bonds, but they can’t be bought in the secondary market.)

T-Bills interest is subject to federal income tax, but they are exempt from state and local taxes, Greiser said. That may “provide an advantage over CDs, depending on interest rate differentials and an individual’s tax situation,” he said.

The secondary market for T-bills is larger than for CDs, and that makes an early exit easier if you need the money before maturity, he noted.

One tactic for longer-term CDs and T-bills: buy them with the idea that interest rates will fall while the money is tied up. (“In our view, we are not in that climate right now,” Williams said. At the Fed, Powell has said rates will have to be higher “for longer.”)

Money parked in a T-Bill or CD, of course, remains temporarily on the sidelines, for better or for worse. “When the market skyrockets during the time you park your money, you may feel a bit let down. That’s the price you can pay for low risk,” Greiser added.

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Any kind of cashing out on CDs or elsewhere shouldn’t cloud the overall purpose for this part of one’s purse and wallet, Williams said. “Ultimately for returns and stability, cash is the safest part of your financial life.”

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